Economic comment

June CPI inflation was confirmed at flash 3.3% y/y. The increase from 2.9% y/y in May was driven mostly by higher fuel prices (+0.2pp to the headline) and core inflation, which likely jumped to 4.3% y/y from 3.8% y/y (official data due for release tomorrow). We are expecting inflation to go down in the months to come, below 2% y/y in early 2021, yet some short-term upward disruptions due to the coronavirus effect are possible. Preliminary GUS data on foreign trade for May showed a rebound of exports to euro zone and other developed countries while imports from these directions stayed depressed, as a result trade balance in goods was the highest since at least 2004.

The Monetary Policy Council kept interest rates unchanged, with the main reference rate at 0.1%, Lombard rate at 0.5% and deposit rate at 0.0%. The post-meeting press conference was cancelled again. As always in July, the Council received the updated NBP economic projections, with the main results listed in the post-meeting press release (details in the table below). The forecasts assume a deep recession in 2020 and only a limited GDP rebound in 2021, which is a more gloomy scenario than represented by the market consensus or the recent IMF and EC’s reports. The central bank also foresees inflation to stabilize well below the 2.5% official target in 2021-22. (...)

May retail sales surprised to the upside with a 7.7% decline in annual terms (consensus: -11.7% y/y, our call: -14.0% y/y). While a rebound from -22.9% y/y in April was widely expected due to gradual easing of lockdown measures (reopening of shopping malls on 4th May), the scale of recovery came as a positive surprise. In June, sectoral business sentiment indexes all improved again, and at a higher pace than in May.