The National Bank of Poland will face a difficult problem

Inflation in Poland for October fell to 2,8% year-on-year, although the latest consensus indicated a rebound in price dynamics to 3,0% year-on-year. Inflation in Poland is clearly weakening and is rapidly approaching the inflation target set by the National Bank of PolandPolicymakers will meet next Tuesday and Wednesday to determine Poland's interest rates. Although the market was divided on the October decision, the Monetary Policy Council ultimately opted for a cut, casting doubt on its willingness to lower rates at the November meeting. But with the current lower inflation, shouldn't the reduction be a formality?

Inflation surprised at a lower level, similar to a month ago, which ultimately allowed for a reduction in interest rates to 4,5%. Most MPC members speaking in recent weeks tried to cool down expectations for a rate cut in NovemberLudwik Kotecki indicated that the current scale of the cut appears sufficient. Cezary Kochalski, in turn, says he would like to reduce expectations, taking into account the accelerated cut in October. Henryk Wnorowski shares a similar view, indicating that maintaining interest rates is much more likely. Przemysław Litwiniuk sees a chance for a cut this year, but points to the need for caution. Ireneusz Dąbrowski also sees potential for a cut, but does not indicate when it would occur.

How does the market see it?

The 1- and 3-month WIBOR rates are slightly below 4,5%, while the 3-month forward rates provide almost 100% certainty that rates should be lower. However, we also have the December and January meetings in this regard. Looking at the market consensus, the still limited number of votes mostly points to maintaining interest rates, although it is worth remembering that the number of forecasts may increase and change by next Wednesday.

A quite clear position among banks was presented Goldman SachsEconomists at the bank indicate that they were among the few who predicted the cut in October, and given inflation, they predict a continuation of the cut in November. Furthermore, the bank believes the Monetary Policy Council will lower rates at some point to the target level of 3,5%. According to Goldman Sachs's chief economist for the Central European region, concerns about excessive deficits and their impact on inflation are overstated.

Latest inflation projections

It's also important to remember that the Monetary Policy Council (MPC) will learn the latest inflation projections just before its decision. It's clear that these projections will be lower than the July ones, but the November decision could essentially hinge on them. In the best-case scenario, inflation could quickly fall back to the target, which would pave the way for interest rates to fall to as much as 4,0% this year, although the market is not pricing this in at the moment.Moreover, following Professor Glapiński's recent comments, longer-term interest rate futures have jumped and assume a maximum cut to 3,70 and a return to above 4% in a 5-year horizon.

The Monetary Policy Council (MPC) decision will typically be published on Wednesday, likely around 15:00 PM or later, given the potential for heated debate and inflation, which provides a mandate for interest rate cuts. A press conference will be held on Thursday at 15:00 PM with the chairman of the MPC, Professor Adam Glapiński.

This late morning, the dollar is worth PLN 3,6785, the euro is worth PLN 4,2561, the pound is worth PLN 4,8332, and the franc is worth PLN 4,5862.

Source: Michał Stajniak, CFA, XTB