National Bank of Poland may stay neutral on PNL

Poland's industrial production growth recovered to 5.3% yoy in May from a soft April reading of 2.7% in seasonally and working-day adjusted terms, maintaining the growth momentum at the beginning of the year. Food sales appear to be lagging. Lending growth eased to 5.8% yoy for households and 3.3% for corporates. Bank of America forecasts, the Polish economy is likely to grow at 3.5% in 2015. 

Stable wage growth (3-4% yoy) amid labor market recovery and low inflation should support consumption growth, argues Bank of America. Companies' hiring intentions appear stablewhile job creation is running at a rate around 1% yoy - above the pace in 2012-14 but still below the 10-year average of 1.6%. 

The robust 1Q growth rate, with recent PLN weakness and an increase in political uncertainty, implies the National Bank of Poland will stay neutral. The Monetary Policy Council has been sending strong signals to the market about its intention to end the easing cycle. The recent PLN weakness eased the MPC's concerns about higher risks of inflation undershooting. 

"Our baseline has the policy rate steady at 1.50% through 2016, and we note that the risk of easing has fallen significantly. Beyond solid growth fundamentals, the MPC has a psychological constraint, as most members' terms end in January and February 2016", says Bank of America.