Poland Macro Weekly: NBP rate hikes coming to an end

Two more hikes and over? As inflation is nearing a peak and the economic growth outlook is getting grimmer (to be confirmed in fresh NBP projection), the MPC is likely to end the tightening cycle soon. We assume two more rate hikes of 50bps each in July and September, taking the the NBP reference rate to 7.00%.

Manufacturing PMI for June plummeted to 44.4 (from 48.5 in May) suggesting that recession in manufacturing sector has already begun.
CPI inflation hit 15.6% y/y (up from 13.9% y/y in May) while core inflation increased to 9.1-9.2% y/y (on our estimates, from 8.5% y/y in May). Waning core inflation momentum as well as a potential deep economic slowdown support a more cautious approach to monetary policy tightening in Poland.
The state budget sported a surplus of PLN 12.1bn after May as a result of a significant increase in tax revenues. That said, 2022 fiscal result will depend on the shape of the amendment to the budget act planned for holiday period.
Current account balance has been revised down, hitting -2.7% of GDP in 1q22 (12-month rolling, vs. 2.2% of GDP previously), while C/A balance for 2021 was -0.7% of GDP (vs -0.6% of GDP previously). Data indicate that external imbalance at start of 2022 was bigger than we have previously thought and that C/A balance will dive below 3.0% of GDP in 2022 (on our forecasts).
The European Commission representatives suggested that concessions made by Poland so far are not sufficient to trigger the Domestic Recovery Fund payments.

Except for the MPC meeting with fresh NBP projections (see top theme section), we will also get minutes of the MPC meeting in June, but it should be a non-event in our opinion given a package of new information (data and new projections) the Council has been provided with since early June.