No Change in Poland's Central Bank Reference Rate

September 30, 2009

For a third consecutive monthly meeting, officials at the National Bank of Poland left their 7-day policy reference rate at 3.5%.  The rate had been 6.0% in October 2008 but was cut by 25 basis points on November 26 and by 75 bps each on December 23 and January 27.  Three final cuts of 25 bps were announced on April 25, May 25, and June 24.  Today’s statement was less dovish, however, than those in June, July or August.  It explicitly says that officials have become less confident that inflation will be below the 2.5% target in the medium term, although officials still think that is more likely to happen than the possibility of medium-term inflation exceeding target.  On-year CPI inflation was 3.7% in August, above prints of 3.6% in July and 3.5% in June.  The resilience of inflation reflects higher administered prices and previous depreciation of the zloty, which is about 20% weaker against the dollar than a year ago. Nonetheless, higher-than-anticipated inflation up to now exposes Poland’s latent predisposition to inflate.  On-year GDP growth of 1.1% in 2Q09 surpassed expectations and resulted from a slightly greater-than-assumed boost from net exports than drag from domestic demand.  Third-quarter indications of activity have been consistent with economic recovery, but positive growth is expected to be only moderate and vulnerable if new shocks emerge. Reading between the lines of today’s statement from the central bank, interest rates seem unlikely to be raised or lowered further anytime soon.

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

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