National Bank of Poland Eases 25 Basis Points

March 25, 2009

Poland’s central bank cut rates for a fifth consecutive month, but the reference rate was reduced by only 25 basis points in light of zlotty weakness raising inflation.  The reference rate now becomes 3.75%, 225 basis points less than peak.  February’s cut was also by 25 bps following back-to-back reductions of 75 bps in December and January.  CPI inflation accelerated in February to 3.3% from 2.8%.  Like many eastern European countries that had borrowed heavily from Western Europe to fund previous growth, Poland is now grappling with a serious recession and a greatly weakened currency.

A statement released by monetary officials concluded that significant sub-trend economic growth poses greater medium-term risk for sub-target inflation than above-target inflation.  The bias for future monetary policy thus lies in the direction of more rate cuts, but the scope for easing would be greater if fiscal discipline could be maintained.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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