A Surprise Decision from the National Bank of Poland

October 3, 2012

Economists had been incorrectly predicting a rate cut this month by the Monetary Policy Council at Narodowy Bank, and a released statement made several points that are consistent with reducing rates.  Note was made that several other central banks eased in September.  Soft global activity promotes disinflation.  In Poland, industrial production, retail sales, the labor market, consumer credit growth, and sentiment have moved lower.  CPI inflation slid in August to 3.8% from 4.0% in July.  Expected inflation also softened somewhat. 

Nonetheless, policymakers at the central bank decided not to cut the 4.75% reference interest rate just yet.  Their inflation target is 2.5%, and they expect actual inflation to exceed that objective at least through the end of 2012.  Note was made of elevated commodity prices.  That said, the door was left open to an interest rate reduction possibly in the near future.

Should the incoming data, including the November inflation projection of the NBP, confirm that economic slowdown would become protracted, while the risk of increase in inflationary pressure be limited, the Council will ease monetary policy.

If and when the Council does cut the 4.75% reference rate, such will constitute a trend reversal. From a record low of 3.5% from mid-2009 until the start of 2011, five increases of 25 basis points each were administered in January 2011, April 2011, May 2011, June 2011, and May of this year.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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