In our view, the tone of the conference was very dovish, with the chairman manifesting an aversion to positive real rates and even saying that before yesterday’s cut, the real rate (at -3.4% vs. -10% in the first quarter of 2023) was “killing” for the economy.
Also, the NBP governor presented a stong aversion to bear the disinflation cost in the form of sacrificed economic growth or a deterioration in the labour market. The Fed chairman clearly declares that some deterioration in the situation of workers is needed for inflation to decline. At the same time, Professor Glapiński has again declared that he tolerates inflation at 5%, which is higher than the NBP target (2.5%, +/-1%).
The dovish stance was also manifested by a very tolerant approach to the weakening of the zloty. He considered yesterday’s 2% drop in the currency a small change, as the zloty had previously strengthened 17%. In his opinion, such a weakening of the PLN has no impact on the CPI, especially in the face of the profound deflationary processes taking place abroad.
The MPC’s assessment of the economic situation and the disinflation factors also showed the Council’s sensitivity to weaker GDP growth. The chairman stressed that the slowdown is deeper and more prolonged and the recovery is weak, which lowers inflation and causes currency fluctuations. He added that the deflationary process is mainly related to the economic slowdown in many countries. In our view, he attributed a relatively small role to receding supply shocks.
We believe that the conference missed observations that other central banks point out. They say that the economic downturn is dampening inflation less than in previous business cycles because labour markets are relatively strong in the US and Europe. The same is true in Poland. Hence, many central banks are paying attention to stubbornly high services inflation.