20180315-法国巴黎银行-Polish_CPI__FX_pass-through_and_policy_implications_10页_735kb

Summary of Polish CPI: FX Pass-through and Policy Implications

Core Content

The document analyses the exchange rate pass-through (ERPT) effect on inflation in Poland and its implications for monetary policy. It highlights that the ERPT has significantly decreased over time, from 0.35 in the early 2000s to just below 0.1 currently. This decline suggests that the impact of exchange rate changes on inflation has weakened, but the PLN's appreciation still plays a role in monetary policy decisions.

Key Findings

• FX Pass-through to Inflation:
  The PLN rate pass-through to inflation has fallen to less than 0.1, indicating a reduced sensitivity of inflation to exchange rate movements. However, the appreciation of the PLN continues to tighten monetary conditions, which can be equivalent to 250-300bp of interest rate hikes.

• Impact of PLN Appreciation:
  A 10% nominal appreciation in the PLN reduces inflation by about 1 percentage point, which is a significant effect. This supports the Polish central bank's (NBP) stance on maintaining a cautious approach to interest rate hikes.

• Non-linear Relationship:
  The ERPT is not linear and varies with the economic cycle. It tends to decelerate or accelerate sharply at cyclical extremes. When the output gap is negative, the ERPT is smaller, and when the output gap is positive, it increases.

• Output Gap Influence:
  The ERPT is more sensitive to the output gap during downturns than during upswings. This implies that the central bank's policy decisions are influenced not only by inflation but also by the state of the economy.

• Policy Implications:
  The NBP appears to be considering the FX impact directly in its policy outlook. An augmented Taylor rule incorporating the FX pass-through effect suggests that the central bank may adjust policy rates more gradually in response to inflationary pressures and economic conditions.

Estimation and Modeling

• The ERPT is estimated using a model that includes real GDP growth, the output gap, oil price changes, and the PLN NEER. Inflation expectations are not included due to a lack of reliable long-term data.
• The model's residuals align with the NBP's inflation targets, indicating that the central bank's credibility has anchored inflation expectations.
• The estimated ERPT suggests that a 10% appreciation in the PLN reduces inflation by 0.9 percentage points after one quarter.

Policy Scenarios

• The document outlines a matrix of scenarios using an augmented Taylor rule, which includes the FX impact.
• With a 5% annual PLN appreciation and core inflation at 1%, the current policy rate aligns with the rule.
• If core inflation rises to 3% in 2020 and the output gap widens, the rule suggests a reference rate of 4.00%, which is significantly higher than current market expectations.

Structural Breaks and Limitations

• The analysis includes three major structural breaks: the PLN float in 2000, EU membership in 2004, and the global financial crisis in 2008-09.
• The model's simplicity and small sample size may limit its accuracy. The authors caution against over-interpreting the results.

Conclusion

• Despite the secular decline in ERPT, the PLN's appreciation remains an important factor in shaping the NBP's policy stance.
• The central bank is likely to maintain a cautious approach to rate hikes, given the current economic conditions and the FX impact.
• The findings suggest that the NBP may increasingly integrate FX considerations into its policy framework, potentially leading to a more nuanced and data-driven approach in the future.

Policy Outlook

• Based on NBP projections, the policy rate is expected to rise gradually, with the potential for more aggressive hikes if inflationary pressures increase.
• The document emphasizes the need for further research into how the labor market impacts underlying inflation trends.

Legal and Disclosure Information

• The document is non-independent research and may be subject to conflicts of interest.
• It contains marketing communications and is not intended as investment advice.
• The information is based on public sources and is subject to change.
• BNPP may engage in transactions that conflict with the views expressed in the document and may have financial interests in the securities discussed.