National Bank Of Poland Holds Rates Despite Higher 2027 Inflation Forecast

(MENAFN- ING) NBP leaves rates unchanged despite high inflation expected in 2027

In line with our and market expectations, the Monetary Policy Council (MPC) left the National Bank of Poland's interest rates unchanged in November. The reference rate remains at 3.75%. We did not share market expectations regarding the scale of rate hikes that were previously priced in, with the yield curve at some point pricing 125bp of tightening and a first hike as early as November.

Little change in the MPC statement

The tone of the MPC's statement accompanying the decision was unchanged from October. The Council repeated the final two paragraphs without any changes. It again noted that future decisions would depend on incoming information on the outlook for inflation and economic activity in Poland.

The list of risk factors was also unchanged, covering fiscal policy, regulated energy prices, the economic outlook and wage growth. The MPC noted that available data point to a slowdown in GDP growth in 3Q26, as well as a decline in core inflation in October. According to our forecasts, GDP growth eased to 3.4% year-on-year in the third quarter from 4.1% YoY in the second quarter.

November projection shows higher inflation, but convergence towards target in 2028

Compared with the July projection, the inflation path for 2026-28 has been revised upwards, while the GDP trajectory remains broadly similar. The cut-off date for the projection (mid-October) once again coincided with elevated CPI readings and high commodity prices. It captured inflation near its peak, before the October decline following the introduction of lower fuel taxes, as well as commodity prices near their highs before the post-election correction in oil and gas prices. Moreover, we do not yet know the quarterly profile of the inflation projection. It probably shows CPI declining around the turn of 2027-28 and returning towards the target. As we have highlighted, subdued wage growth is a strong disinflationary anchor that will bring inflation lower if the energy shock fades.

With a 50% probability, annual CPI inflation is projected at around 3.2% in 2026, around 4.2% in 2027 and around 2.9% in 2028, compared with 2.9%, 2.7% and 2.2%, respectively, in the July projection. Annual GDP growth, with a 50% probability, is projected at around 3.7% in 2026, around 2.9% in 2027 and around 2.8% in 2028. The July projection put the corresponding figures at 3.7%, 2.8% and 3.0%.

Inflation breakdown shows no signs of broad-based pressure or second-round effects

Inflation developments in Poland so far point to a pure supply-side shock that is affecting energy prices and the prices of goods and services closely linked to energy, but there are no signs of broader price pressures spilling over across the economy. Nor do we currently see evidence of second-round effects.

Wage pressure is subdued, while slowing wage growth combined with higher fuel spending is weighing on households' real disposable incomes. At the same time, the propensity to save remains elevated, creating a demand constraint that makes it harder for companies to raise prices. As a result, the MPC does not need to rush into interest rate hikes and can continue to monitor developments in energy markets and their impact on the domestic economy. Based on the available preliminary October CPI data, we estimate that core inflation excluding food and energy fell below 3% for the first time since March this year.

In our view, the NBP's decision to keep rates unchanged in November suggests that the Council views elevated inflation as being driven primarily by an external supply shock. It is possible that the inflation path in the latest projection shows inflation falling towards the central bank's target within the monetary policy horizon. The more detailed quarterly data should show this.

Possible rate hikes in early 2027

Our baseline monetary policy scenario assumes that any interest rate hikes will come no earlier than 1Q27, with a cumulative 50bp increase in rates. The latest inflation projection supports this scenario.

We see several important arguments in favour of rate hikes early next year. The longer the energy crisis persists, the greater the risk of broader price pressures emerging across the economy, something the central bank will want to contain. In addition, the new year could bring substantial increases in regulated prices for households, particularly gas prices, potentially shifting the inflation path higher, although the government has declared its readiness to intervene. Furthermore, additional monetary tightening by major central banks, including the Federal Reserve and the European Central Bank, could increase depreciation pressure on the Polish zloty, raising import costs and potentially boosting inflation. Estimates suggest, however, that the exchange-rate pass-through to inflation in Poland is limited.

Whether the rate hikes we expect in early 2027 materialise will also depend on the durability of the correction in commodity markets. We still cannot be certain that the decline in energy prices will prove lasting. It may reflect a response to the weakening of President Trump's political position following the midterm elections in the US, while the fundamentals of the oil and gas markets continue to point to the possibility that prices will remain high. Changes in the composition of the MPC, following the appointment of three of its members to the NBP Management Board, could delay a rate-hike decision until later in 1Q27.

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