Economic news

• MONETARY POLICY: As expected, the MPC held rates unchanged in April. However, this has been a momentous MPC meeting since the Council pivoted hard towards rate cuts. The NBP governor’s press conference clearly indicates that the Council is planning to frontload monetary easing in the coming meetings. We now expect the MPC to cut rates by 50 bps in May and June each. A more detailed account of April MPC meeting and Mr. Glapiński’s press conference is presented in the next section.
• LABOR MARKET: According to the Ministry of Family, Labor and Social Policy, unemployment rate declined from 5.4% in February to 5.3% in March, in line with expectations and the seasonal pattern.
• INFLATION: CPI continues to surprise to the downside. In March it failed to accelerate, the flash estimate showed (+4.9% yoy), thereby constituting a clear plateau. The details provided by Statistics Poland indicate the surprise was driven by lower-than-anticipated core inflation. As a result, we now expect inflation to fall below 3% in late 2025. Our full comment on the data can be found here. In addition, both the Ministry of Finance and the Ministry of Climate and Environment confirmed that the government was planning to extend the current cap on energy prices until the end of the year, confirming the more benign scenario for energy prices in Q4.
• FISCAL POLICY: According to Statistics Poland’s first estimate, general government deficit surged to 6.6% of GDP in 2024, considerably above expectations (ca. 5.5%). At this stage we are unable to ascertain the source of the surprise, since the deficit was not broken down into subsectors (more detailed data will be published in two weeks). However, we know that local governments sustained an unexpectedly high level of investment in 2024 (PLN 82 bn) and did not run a modest surplus, contrary to our expectations. Therefore, while the surprise can partially stem from stock-flow adjustment issues and other transitory factors, fiscal deficits are also more persistent than we anticipated.
• SENTIMENT: Polish Manufacturing PMI rose from 50.6 to 50.7, broadly in line with expectations. We see the release a part of a broader trend of improving economic sentiment. However, the levels of all important indices are still consistent with moderate economic growth.
• DEBT: The Ministry of Finance and BGK published their bond issuance plans for the coming months. The MoF is planning to organize 7-8 bond sales in Q2 with total supply in the range of PLN 55-75 bn (2 of them in April, on the 23^rd and 28^th). There will also be a switching auction on April 9^th. BGK wants to run 6 sales of FPC-series bonds, two of which this month (April 10^th and 24^th).

A dove leading a flock of pigeons

The title of our text contains a quote from a statement by the NBP Governor A. Glapiński at the monthly conference after the MPC April meeting. However, the "dovish turn" did not end with declarations. From the beginning of his speech, the NBP President indicated that the MPC had changed its stance regarding the preferred direction of monetary policy, due to optimistic signals coming from the economy. In our opinion, the annual revision of the weights in the consumer basket (which increased inflation in Poland by 0,4 p.p. compared to previous estimates) also played a significant role in such a change. As a result, Glapiński announced, there may be room for adjusting monetary policy in the near future (the MPC Governor emphasized that he had the Council's authorization to use such a formulation).

More detailed announcements regarding the future path of interest rates (forward guidance) were formulated in the discussion after the conference. We summarize the most important conclusions below:

• The first interest rate cut may take place as early as May or any other month. The July deadline should not be attached (Glapiński suggested that the markets have attached to the July deadline due to the calendar of publication of the NBP Inflation Reports, but the Council does not see July as a significant turning point).
• In opinion of the NBP President, it is still too early for a complete cycle of monetary policy easing. Currently, some adjustment of the interest rate level would be more appropriate. At the same time, if the coming data remains optimistic, Glapiński would be willing to personally submit a motion for the first cut.
• What would be the scale of such an adjustment? According to the NBP President, in 2025 there would be room for two cuts of 50 bps, separated by a certain break to assess their effects. In the perspective of 2026, the interest rates may reach the level of 3.50%.

Why such a change in the MPC's attitude? Judging from the nominal wording of the NBP Governor’s arguments, the weak data from the labour market, showing a slowdown in wage pressure in Poland, turned out to be an important argument. The MPC Chairman also devoted a lot of space to the revision of the weights in the inflation basket. He admitted that the revision does not affect the actual inflationary pressure, however, due to the technical reduction in the CPI, we are currently in a situation in which inflation at the end of the year will probably be lower than in the first months of 2025. This fact of a technical slowdown in inflation could, in our opinion, have been of considerable importance for the MPC, especially since the slowing wage growth had already been observed for several months (this is not a new trend in the data). The key role of lower wage growth and a technical reduction in the inflation path is additionally indicated by the fact that President Glapiński decided to additionally illustrate these two economic phenomena with charts.

NBP inflation projections from the NECMOD model - March and current

Source: NBP, Pekao Research

Finally, we need to answer the question: what will the markets do with the announcements of monetary easing? Investors believed in the MPC's dovish turn, rushing to buy on the FI market - the yield on the 10-year Treasury note stopped falling only at the support level of 5.45, which is the lowest level in six months. In our opinion, in the coming months we will see two cuts of 50 bps each - the first in May and the second at the MPC meeting in June.

Financial market update

Risk aversion did not spare the zloty, which has settled above 4.20/EUR for good. We don't need to mention the sell-off on the Warsaw Stock Exchange and the drop in market rates - they are part of the same massive repricing of macroeconomic scenarios. Nevertheless, two powerful shocks coincided last week: “liberation day” and the dovish turn of the Polish MPC. As a result, PLN bond yields fell by more than 50 bps last week, swap rates by 45-65 bps. Thus, markets are already pricing in a quick start to the cycle of reductions and a lower terminal rate (3.5%).

In our view, given the macro conditions and the MPC's current communication, this is a fully rational path for interest rates. However, since this scenario is already fully priced in, it is worth considering where its weaknesses and risks are, and whether they are symmetrically distributed. For the moment, this distribution seems symmetrical. The markets are quite rightly doubtful about the convoluted scenarios involving pauses in the easing cycle, phases, etc. The global environment seems to favor rate cuts and allow the NBP to freeride, although markets have been very cautious in pricing them for the ECB (contrary to what is attributed to the Fed), which is the more important central bank from our perspective. On the other hand, the inflation data are not yet sending a “full steam ahead” signal - disinflation is not affecting the supercore part of the basket, suggesting the persistence of price and cost pressures in some sectors. The impact of the trade war on inflation in Poland might not be trivial, either. This week does not look like one poised to affect the market’s belief in lower interest rates in Poland – the calendar of macro releases is basically (monthly balance of payments figures are the only exception) empty.