Economic comment

Inflation in Poland stood at 2.1% y/y in February, in line with the market consensus and 0.1 pp above our forecast. The change in CPI basket weights led to a revision of January inflation from 2.2% y/y to 2.1%, and from 0.6% m/m to 0.7%. Core inflation may have remained at its December level of 2.7% y/y in both January and February, with a chance of a slight decline in February.
CPI data for January and February should not have a material impact on the MPC’s decisions, inter alia due to uncertainty over the consequences of the war in Iran and the Council’s shift into a “wait-and-see” mode, already signalled by several of its members.

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. (...)