Economic comment

At today’s conference NBP governor Adam Glapiński confirmed that the MPC cut main interest rates again this week mainly because the recent data confirmed a further decline of inflation and the new NBP projection showed improvement of inflation outlook. The low inflation in future should be supported by: 1) deceleration of wage growth, 2) lack of economic overheating, 3) continued PPI decline, 4) experienced inflow of cheap goods from China. The main short-term risk is the situation in the Middle East, but – as it is impossible to predict its further development and consequences – the Council did not take this factor into account at the last meeting. (...)

The “Polish SAFE 0%” project, discussed on Wednesday by President Karol Nawrocki and NBP Governor Adam Glapiński, has not been explained in detail. Based on the available information, we are not certain what the mechanism guaranteeing PLN185bn in financing would look like, how it would avoid interest and debt, and how it would operate (at least in the initial phase) within the existing legal framework. The variants we are able to envisage could be seen as a de facto attempt to circumvent regulations prohibiting the central bank from financing government deficits, carrying inflationary risks as well as risks to the credibility of the central bank. (...)

Polish MPC cut interest rates by -25bp, the main reference rate to 3.75%. The decision, which seemed to be a done deal only a week ago, became much less obvious in the last few days given the uncertainty introduced by the conflict in the Middle East. Apparently, the Polish central bank got convinced by the results of the new NBP projection and decided to show it is insensitive to short-term market fluctuations, but rather is focusing on mid-term trends. (...)