Our main takeaways

We see different sources of high inflation as the chairman of the MPC. The external shocks were amplified by a pro-inflationary GDP structure in Poland, based on a consumption boom. A high CPI also reflects demand pressures and a wage-price spiral, the impact of which will only increase this year.

Our different view on the sources of inflation is one reason why we consider the high CPI to be more persistent, and we will end up with higher terminal rates than Glapiński envisions. We expect the NBP to raise rates to 4% in 2022 and conclude the cycle at 4.5% in 2023.

The start of the year will be a focal time for checking the president’s views as the impact of rising energy prices materializes. We see average annual CPI growth of 7.7% in 2022, peaking at around 8.5% yoy in 1Q22 and 8.7% yoy in mid-2022. We expect inflation to remain high even after the price of energy commodities begins to decline. Businesses are still passing the rising costs on to consumers. This is encouraged by strong internal demand, driven by a tight labor market. In 2023, we see a CPI above 5%, so it should decline more slowly than the NBP forecast.

Glapiński also informed us that the NBP 2021 financial result is expected to be significantly higher (above PLN 10 billion) than the PLN 9.3 billion achieved in 2020. This probably reflects a higher valuation of foreign exchange reserves given the depreciation of the PLN, especially against the dollar.

The President reiterates that the NBP does not target any PLN rate and intervenes in the event of excessive volatility. Glapiński also notes that the central bank currently has no plans on how to manage its portfolio of bonds acquired during its quantitative easing program.

We expect the National Bank of Poland to raise rates to 4% by the end of this year and conclude the cycle at 4.5% next year. This is higher than indicated by President Glapiński. We believe that even with his shift to more hawkish rhetoric late last year, he still represents the conciliatory wing of the MPC.

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