Page 9 - Poland Outlook 2022

recently assumed due to a further increase in the prices of raw materials and
energy at the turn of the year, as prices of CO2 permits, electricity, gas and oil
are rising again,” Santander Bank Polska noted.

Analysts predict that CPI, after a temporary decline in early 2022, will return to
around 8% in Q2 and will start to gradually decline only mid-way through the
year to 4.7% y/y in December. The average inflation in 2022 is expected to
come in at around 6.5%. Core inflation will flatten out close to 6% and only in
the second half of the year will it start an incremental descent. The decline of
CPI and core inflation to the upper limit of the NBP target may even take until
the end of 2023.

The Monetary Policy Board (the NBP’s rate-setting body) appears flexible in its
approach to the inflation target by targeting the upper limit of the acceptable
range of deviation from the target rate, but, analysts say further policy
tightening will be necessary to contain inflation in an economy growing above
potential (the output gap closed in mid-2021, according to the NBP), with an
ever tighter labor market, reviving credit demand, high inflation expectations,
and new fiscal initiatives aiming at sustaining household consumption.

The current consensus for 2022 appears to assume that the NBP reference
interest rate will peak at 3%-3.5% in 2022, although some analysts do not rule
out 4%. The new year’s first interest hike is widely considered a done deal in
January, when rates will go up by 50bp to 2.25%. Further steps will depend on
the pandemic situation – Poland is yet to experience the spike in new cases
caused by the omicron strain of the coronavirus – as well as macroeconomic
data and the arrival of two new members of the MPC. The current speculation
is that the Senate will pick two relative hawks.

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