Even though central banks all around Central Europe already on the rate rising path the Polish NBP is faced with what still looks like a rather safe inflation outlook and fairly decent 2007 budget and will almost certainly stay put for the seventh time in a row today. Hence all attention will be devoted to the statement after the decision, which the market hopes will help pinpoint the exact timing of the start of the start of next year’s tightening cycle. The August inflation report surprised the market negatively for the second time in a row two weeks ago, but the difference from expectations was almost entirely caused by higher food prices and was therefore a factor of purely supply nature, hence it should be mentioned in the policy statement but not really considered as a reason to think about raising rates.
The MPC should also stress that the major risks to price stability come from the robust job market – strong wage and employment growth has so far been offset by rising productivity, but has nonetheless been driving unit labour costs slightly higher and fuelling consumption. From this side the statement might seem a bit bearish but we expect the MPC to put some stress on the expected moderation of growth and its “model” structure as well, and to refrain from signalling when it could start raising rates.
Our view: We see room for a series of two modest 25 bp. rake hikes next year starting in April and then in July, which would coincide with the first two inflation reports in 2007.