Inflation outlook may prompt Poland's central bank to hold rates- BofA

Poland's central bank (NBP) is widely expected to maintain its monetary policy rate at 5.25% at its July 2 meeting, aligning with Bank of America forecasts and market pricing. This decision is anticipated as inflation is projected to fall below 3% starting in July, leading BofA analysts to foresee a potential rate cut in September rather than an immediate adjustment.

Analysis

The National Bank of Poland (NBP) is poised to maintain its key policy rate at 5.25% at its upcoming July 2 meeting, a move that is widely anticipated by the market and aligns with forecasts from Bank of America. This expectation is further solidified by recent signals from members of the Monetary Policy Committee. The primary rationale for this hold is the projection that inflation will decelerate to below 3% beginning in July. Consequently, the central bank appears to be adopting a 'wait-and-see' approach, with Bank of America analysts identifying the September meeting as the more probable timing for an initial rate cut. The current market pricing suggests this scenario is largely factored in, implying that the immediate market impact of the July decision will likely be muted, barring any unexpected forward guidance from the NBP.

Key Decisions for Investors

• Investors in Polish fixed income and the zloty (PLN) should monitor incoming inflation data closely, as it will be the primary catalyst determining the timing and likelihood of the anticipated rate cut in September.
• Given that a rate hold is the consensus view, any surprise deviation or unexpectedly hawkish commentary from the NBP during the July meeting could trigger notable volatility in Polish assets.
• Equity investors may interpret the NBP’s current stance as a signal to position for a potential dovish pivot later in the year, as a future rate cut could serve as a positive catalyst for Polish equities by reducing corporate borrowing costs.