National Bank of Poland Cuts Reference Interest Rate for First Time since June 2009

November 7, 2012

Officials at the Narodowy Bank reduced their central bank interest rates by 25 basis points as analysts had expected.  The key reference rate drops to 4.5%.  Today’s action, which officials explained in a statement on their website, reverses the last of five 25-basis point rate hikes administered between January 2011 and May 2012.  The statement observes some recent deterioration in international financial market sentiment, reduced lending to households, a lack of domestic wage pressure, and some worse-than-assumed Polish data such as those for September retail sales and industrial production. Although CPI inflation of 3.8% still exceeds the 2.5% target, core inflation and the PPI are receding, and downward revisions have just been made to the central bank’s forecasts of CPI inflation in 2013 and 2014.  Moreover, members of the policy council left the door ajar to a possible further stimulus.

Incoming data confirm a considerable economic slowdown in Poland, which contains wage and inflationary pressure. At the same time, in line with the November projection prepared under the assumption of constant NBP interest rates, GDP growth will remain below potential in the coming years. According to the projection, inflation will return to the target in the coming quarters, and might fall below the target in the medium term. ….Should the incoming information confirm a protracted economic slowdown, and should the risk of increase in inflationary pressure remain limited, the Council will further ease monetary policy.

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

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