National Bank of Poland likely to stand pat, inflation to have eased in May on lower oil prices

The Polish central bank is set to meet tomorrow for its interest rate decision. According to an Erste Group Research report, the National Bank of Poland is expected to keep rates stable in spite of the negative surprise from April’s real economy data.

The massive contraction of industrial production and retail sales was because of the full-month closure of the economy. With a gradual easing of restrictions since early May, economic activity should start to recover. Moreover, rate cuts might be considered in the second half of the year. Nevertheless, the space for further easing is restricted, as NBP is unlikely to post negative interest rates.

Meanwhile, the flash GDP reading of the first quarter, which is set to release later in the week, is expected to come in at 1.9 percent year-on-year. Investments and private consumption most likely contributed positively to the overall figure, but the growth dynamics were lower than those seen in previous quarters. The net export contribution might also continue to be positive, given solid performance in the January-February period, said Erste Group Research.

“The effect of low oil prices will continue to weigh on the inflation figure, as we see it dropping to 2.9 percent y/y (-0.3 percent m/m) in May. We revised our FY20 inflation forecast down to 3.1 percent”, added Erste Group Research.