Poland's Monetary Policy Council (MPC) left its benchmark interest rate on hold on February 3. The rate setting meeting was the first to feature the nominees of the Law and Justice (PiS) government, but new members offered few signals that they will move the MPC to a more dovish stance.
 
The decision to hold rates at a record-low 1.5% to which they were dropped in March was fully in line with market expectations. The council repeated the message that Poland’s economy is set to growth healthily, and noted the signs of acceleration in the fourth quarter of 2015. 

The MPC also noted inflationary pressure remains absent, but expressed support for the persistent line that deflation is largely the result of falling global commodity prices, and therefore easing policy would likely have little effect.

Deflation is yet to exert any negative influence on the Polish economy, the council added. Poland’s consumer price index (CPI) fell 0.9% y/y on average in 2015 and 0.5 y/y in December, according to data released by the Polish statistical office GUS on January 15.

"The MPC has decided to retain interest rates on an unchanged level, as in the context of available data and forecasts the rates’ current level is supportive of keeping the Polish economy on the path of sustainable growth and allows to retain macroeconomic balance," the MPC said, repeating its statement from the previous meeting.

“Better evaluation of the expected inflation path and growth dynamics will be possible when the new inflation projection is released in March,” the council added.

The current MPC projection is that CPI will average as low as -0.9% in 2015, which was confirmed by GUS data recently. Inflation is expected to accelerate in 2016, but within a range of 0.4%-1.8%. Economic growth is expected at 2.9%-3.9% in 2015. 

Any new stance amongst rate setters – if any – is therefore likely to become clearer next month. On top of the new inflation report, the MPC will by have a majority of members appointed by PiS - which is understood to favour doves - with more to be nominated this month.

"While we may see a shift towards a more dovish tone in the MPC’s forthcoming communications … a marked change in the actual direction of interest rates seems unlikely, suggest analysts at Capital Economics. "Our long-held forecast is for the policy rate to stay unchanged at 1.50% throughout the course of this year and into 2017."

By way of contrast, Erste sees some room for easing to resume, but expects any move may be delayed by the volatile zloty. “[National Bank of Poland’s] Governor [Marek] Belka pointed to the strong growth, falling unemployment, accelerating wage growth and uncertainty in the external environment, which at this point favour a stable-rates scenario,” the analysts write.

"As we expect deflation to last another half a year, with a slightly weaker beginning of the year, the discussion on rate cuts is likely to come back if the zloty stabilizes," the Austrian bank forecasts.