Last Wednesday, the MPC cut all rates by 25bp (repo rate is now at record low of 3%) and opened doors for further easing. We expected a more decisive move but even a 25bps cut surprised Polish analysts who were too concerned by the political rifts within the Council and forgot about macroeconomic considerations. The cut was justified, in line with our expectations, by the scale of negative surprises and deviations from the current NBP inflation projection. Officially, the Council chose to cut by 25 bps in order to proceed smoothly and avoid shocking markets. The diagnosis of economic developments from the official statement is surely not optimistic, nor was the tone of the press conference afterwards. Governor Belka spoke about ”quasi-stagnation” and an unsatisfying structure of Polish growth (contracting domestic demand). The tone of the statement (the last paragraph in particular) turned out to be more dovish than last month. The Council’s decisions in the coming months \textit{will depend on the assessment of the incoming data with regard to probability of inflation remaining markedly below the NBP target in the medium term}. More importantly, references to developments in the real sphere were excluded from the statement – we interpret this as a dovish move. The message of the conference was not as unambiguous as that of the statement’s. Governor Belka repeatedly refrained from announcing new cuts only to point out that there is a lot of room for further cuts, that the Council’s stance remains accommodative, and to formulate pessimistic forecasts on his own.
