The Monetary Policy Council remains confident CPI will move back to its target in 2H20, and Chairman Glapiński sees no changes in monetary policy in the foreseeable future. The Council also sees no significant risks related to the European Court of Justice ruling on FX mortgages to be rendered on Thursday.

No policy change in sight

The MPC kept rates unchanged, as widely expected. The post-meeting statement was hardly altered as well. The Council expects solid GDP growth ahead and CPI returning close to the target (2.5% year-on-year) after a temporary bump in 1Q20. Chairman Glapiński reiterated he anticipates no policy changes in the foreseeable future, likely till the end of his term. Jerzy Żyżyński added that the government policy supports consumer spending via redistribution, hence monetary easing is unwarranted.

We see the scope for a CPI decline in 2H20 as more limited than the NBP expects, reflecting continuously rising service prices. CPI is expected to oscillate slightly below 3% YoY in 1-3Q20. That is why the market pricing of interest rate cuts should be limited.

We see the actual likelihood of monetary tightening as low. Next year we expect to see further symptoms of an economic slowdown. Hence facing weakening growth prospects and highly accommodative policy of key central banks the Polish MPC is expected to wait out the period of elevated inflation. The next policy action is likely to be a cut, but likely no sooner than in late 2021.

MPC unfazed by the FX mortgage dilemma

Chairman Glapiński said he sees no negative scenario regarding FX mortgages in the face of ECJ ruling later this week, adding this conclusion transpires from the National Bank of Poland and other authorities analyses alike. He added banks strengthened their capital bases following regulators' recommendations.

We share a similar view – potential provisions and conversion of such mortgages into Polish zloty (via selling PLN for Swiss francs) will be spread over time. See our detailed thoughts here.