Poland's Central Banker

There can no longer be any doubt that the Polish economy has slowed significantly and it is very hard to find any inflationary pressures.

Hence, there seems to be very good reason for the Polish central bank to ease monetary policy. The NBP has moved to cut its key policy rate over the last couple of months but the rate cuts have so far not been more aggressive than expected by the markets and communication from the NBP -- particularly from NBP chief Marek Belka -- has been quite hawkish. Indeed, it has been hard not to get the impression that the NBP has been reluctant in cutting interest rates despite the clear indication of a fairly sharp slowdown in Polish growth and eased inflationary pressures.

This week Belka in a speech in New Delhi sounded an upbeat note when he said that he thought that a moderate recovery in the Polish economy had already begun. We would like to be so optimistic but, unfortunately, we find it very hard to find any strong evidence that the Polish economy has turned the corner and, therefore, we continue to believe that there is a considerable need for further monetary easing in Poland. However, this is not the view of Marek Belka and probably not of the majority of members of the NBP’s Monetary Policy Council. Therefore, we do not factor in aggressive rate cuts going forward.

However, next week when the NBP’s Monetary Policy Council meets, we would nonetheless expect yet another 25bp rate cut – despite Belka’s optimism. This is also the consensus expectation, although some analysts have been convinced by Belka’s obvious reluctance and his ‘optimism’ that the NBP might not cut next week. Therefore, we would not rule out the NBP pausing the rate cutting cycle next week even though it is not our main scenario.

Russian CPI Continues To Accelerate
Weekly figures point to 0.5% month-on-month CPI in February, which would bring Russian year-on-year CPI to 7.2%. We expect inflation to peak at this level and start moderating slowly in coming months. However, inflation is likely to remain close to 7% for the spring and fall to around 6% as the base effect eases in July. Even though inflation remains elevated for now, the Russian central bank might find the opportunity to lower interest rates as early as April, given that the headline CPI edges down to 6.9% in March as we expect. Given the benign inflation outlook for H2 14, a cut in April-May seems plausible indeed.

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