Poland: Monetary Policy Unchanged, As Expected

The Monetary Policy Council held rates flat and kept the asset purchase program open. The statement is bearish with regards to 4Q20 and 2021. We have not heard anything new on the credit front as some Council members signaled recently that this is a potential area on which to act.

Today's Council decision is no surprise. The market expected that rates would not change in the near future despite the persistence of increased inflation and the lack of prospects for its visible drop.

The statement is bearish with regards to 4Q20 and 2021. The Council underlines that the course of Covid-19 is a key risk for economic activity in the following quarters. The MPC points to a GDP contraction in 4Q20 and then a gradual recovery in 2021. We see -3% year-on-year GDP dynamics in 4Q20 vs the National Bank of Poland's last projection at -6% YoY for 4Q20. Also, we are more optimistic with regards to the 2021 outlook (+4% YoY vs NBP at +3.1% YoY).

The Council pointed out that investments are relatively weak, but the Council has not decided to propose any new measures to support credit. The NBP will continue to keep the bill discount credit unchanged and the open-ended assets purchase program. The Council again noted the limited response of the zloty to the loosening of monetary policies, but we expect only verbal interventions to remain.

We see two main easing channels in the following months. Firstly, further asset purchases of Polish government bonds and instruments guaranteed by the government. This should support the government relief program.

It may also prevent a more pronounced PLN strengthening if the further rise in €/US$ continues to bolster Central and Eastern European currencies. Purchases of corporate debt are unlikely and impossible on a larger scale due to a shortage of properly rated instruments. The current QE program is open-ended and theoretically requires no announcement to extend it. But leaving the asset purchase program opened and an unwillingness to normalize rates soon should help to trim PLN gains.

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