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The EMEA Weekly In Review

ByDanske Markets
Published 11/29/2013, 05:02 AM
Updated 05/14/2017, 06:45 AM
FTNMX301010
1.56%

Next week, the Polish central bank’s (NBP) monetary policy council (RPP) will meet to come to a rate decision. The consensus expectation is that the RPP will decide to keep interest rates on hold. We agree with consensus. The NBP is likely to stay on hold next week.

However, while we agree that the NBP will not do anything next week, we also believe that it is falling behind the curve. Inflation continues to decline and remains well below the NBP’s official 2.5% target. We expect inflation to average less than 1% in 2014 and even though there are signs of a slight pick-up in Polish growth, the output gap remains negative and growth is set to be well below potential growth in the coming one-two years. Hence, there are strong arguments that the NBP should cut its key policy rate.

However, judging from recent comments from NBP officials, there are no signs that the NBP agrees with us on the need for monetary easing. That said, with the neighbouring central banks moving in the direction of further monetary easing – the Hungarian central bank continues to cut interest rates and the Czech central bank has moved to weaken the Czech koruna – it is obvious that the pressure on the NBP to act will be building.

Furthermore, with an increasing likelihood of the ECB stepping up monetary easing, this will also put pressure on the NBP going forward.

Concluding, we do not believe the NBP will cut next week but certainly should and in our view, sooner or later it will have to follow the lead from the ECB, CNB and the MNB.

To Read the Entire Report Please Click on the pdf File Below.

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