NBP Likely To Cut By 25bp Next Week But Risks Skewed To Larger Cut

The rate decision in Poland will be interesting next week. We do not doubt that the Polish central bank (NBP) will continue to ease monetary policy further at next week's Monetary Policy Council (RPP) meeting but the question is how aggressive the central bank will be. Crucial, in our view, will be Q3 GDP, which is due to be released tomorrow morning. If GDP surprises well on the downside, we cannot rule out that the NBP could deliver a larger cut - 50bp, next week. But that should only come in the event that the Polish economy shows a more pronounced sign of slowdown than in general assumed.

Hence, we expect a 25bp rate cut next week, which is also the consensus. Looking further ahead, we expect the NBP in fairly aggressive monetary easing in early 2013 and we now expect the key policy rate to be cut to 3.50% over the coming six months. As growth is expected to remain weak in the coming quarters and inflation is set to ease further, we believe there is really little reason why the NBP should not cut rates aggressively in the coming quarters.

Inflation in Turkey in focus
Turkish inflation for November should moderate further. We expect inflation to drop to 7.3% y/y down from the 7.8% y/y in October. Looking forward, we expect inflation to continue to moderate, hitting 6.2% y/y and decline further to 5½% by H2 13. However, inflation is likely to remain above the Turkish central bank’s 5% inflation target.

That said, growth has slowed markedly and that is likely the reason – combined with a somewhat stronger lira – that the Turkish central bank has recently become slightly more dovish, but whether that is enough to trigger a cut of the key policy rate is another and more open question.

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