Third Monetary Policy Tightening of 2011 in Poland

May 11, 2011

The reference rate of the Narodowy Bank is being raised to 4.25% from 4.0%.  The interval since the prior hike of 25 basis points on April 5 was smaller than that between the first move on January 19 and the second increase.  These are the only increases so far in this tightening cycle, and it leaves the key rate merely on a par with the latest 4.3% on-year rate of CPI inflation, which is up from 3.6% in February and 3.1% at the end of 2010.   Core inflation and PPI inflation have also been cresting, and a statement from officials at the central bank warns that inflation will stay above the 2.5% target for now.  There is a risk of intensifying wage pressure, and the zloty has not appreciated sufficiently to neutralize upside price risks.

Comments about growth in the statement are comparatively upbeat.  During the Great Recession, the central bank rate had been cut by 250 basis points between November 2008 and June 2009.  But Poland’s main trading partner, Germany, is experiencing relatively fast growth, and business surveys indicate that Polish demand and output are likely to quicken.  Fiscal restraint is being imposed, however.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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