Economic comment

September CPI inflation was revised higher to 5.9% y/y from flash reading at 5.8% y/y and versus August print at 5.5% y/y. According to our estimates core inflation rose in September to 4.2% y/y from 3.9% y/y in August (the official data will be released by NBP on 18 October). We expect CPI to easily breach 6% y/y in October and to end the year above 6.5%. A reading above 7% in early 2022 is also increasingly likely. In our view the further rise of inflation will make MPC hike rates several times more, possibly already at the November meeting.

At the press conference the NBP president Adam Glapiński said it was the MPC's intention to surprise the financial market, delivering rate hike sooner and c. 3x bigger than anticipated. Doing so – in his view – the central bank has withdrawn policy accommodation more or less to its pre-pandemic state (although we have no idea what interpretation of the current parameters of monetary policy justifies such statement). Glapiński said the MPC press release deliberately neither signalled likely continuation of rate hikes nor ruled it out – the decisions will be data-dependent. However, by delivering large hike upfront, the central bank "now has the ability to sit and wait, observe the next data". It seems to suggest that a pause in rate hikes is possible in November, unless the flash CPI for October goes up strongly again (but actually our current estimate is 6.2% y/y, with the upside risk). (...)

Polish MPC raised the main reference rate from 0.1% to 0.5%, the lombard rate from 0.5% to 1.0% and kept deposit rate at 0.0%. The reserve requirement rate was raised from 0.5% to 2.0%. We think this is just the beginning of the tightening cycle. We do not expect the pace of rate hikes to be very rapid, as Glapiński was emphasizing many times it is crucial that removal of accommodation must not hamper economic growth. However, a sequence of +25bp rate hikes in the coming months is quite possible, as inflation will be quickly breaching next thresholds – most likely above 6% in October, near 7% at the turn of the year. Some hints about the timing and scale of next moves may be laid out tomorrow at 15:00 at the NBP president's press conference.