The impact of the energy shock linked to the conflict in the Middle East appears to have been short-lived, and the pass-through of high oil prices on core inflation more limited than expected. Although the spike in oil prices and the subsequent rise in petrol prices pushed Poland\u2019s consumer inflation from around 2% at the beginning of the year to above 3% in March and April, CPI inflation came in well below market expectations in May and June. According to the flash estimate, headline inflation stood exactly at the National Bank of Poland\u2019s target of 2.5% last month.<\/p>\n
The easing of the oil shock and the temporary nature of the rise in headline inflation have altered market perceptions of the monetary policy outlook. At the beginning of June, rate forwards were pricing in more than three rate hikes, whereas by the start of this month some investors had already begun betting on rate cuts later this year. Our views are less volatile. Throughout the US-Iran war, we held the view of flat NBP rates. Now, our baseline scenario also assumes that rates remain unchanged (at 3.75%) until the end of 2026, as we see CPI slightly above the 2.5% year-on-year target for the rest of this year.<\/p>\n
We expect the Monetary Policy Council to leave rates unchanged in July and maintain its wait-and-see stance. The easing cycle in Poland was interrupted by turmoil in the Persian Gulf, but policymakers will require greater confidence in a favourable inflation outlook before resuming monetary easing. So far, the decline in inflation has largely been driven by normalising oil prices and unexpectedly sharp falls in food prices. Core inflation remains close to 3%. Moreover, fiscal measures aimed at reducing petrol and diesel prices, including lower excise duties and VAT rates, expired at the end of June, pushing fuel prices higher at the start of July.<\/p>\n
The July macroeconomic projection is likely to present a favourable medium-term inflation outlook, but we believe policymakers will need several months to convince themselves that the economy is avoiding lagged inflation effects of energy or supply chain shocks, especially on the core CPI side. While Governor Adam Glapi\u0144ski may strike a somewhat dovish tone at Thursday\u2019s press conference, the debate over potential rate cuts is only likely to gather momentum after the summer.<\/p>\n
As the likelihood of further rate hikes from the European Central Bank has diminished and additional monetary tightening by the Federal Reserve this year appears increasingly doubtful, the external negative pressure on the zloty should diminish. Still, the FX market appears worried that the NBP may turn more dovish soon, which is PLN negative. By contrast, the National Bank of Hungary\u2019s dovish rhetoric has had little impact on the forint, which continues to benefit from a strong convergence play. With euro adoption still a more distant prospect in Poland, however, any further softening in the NBP\u2019s tone poses a greater downside risk to the zloty.<\/p>\n","protected":false},"excerpt":{"rendered":"The impact of the energy shock linked to the conflict in the Middle East appears to have been…\n","protected":false},"author":2,"featured_media":531080,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":["post-531079","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-il","tag-israel"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/531079","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=531079"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/531079\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/531080"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=531079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=531079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=531079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}