Poland and Sweden

February 24, 2010

Narodowy Bank, Poland’s central bank, left its seven-day reference rate at 3.5% as expected.  The key rate has been at that level since a 25-basis point cut last June, which culminated 250 bps of easing in six moves over seven months.  A statement from Policy monetary authorities unveiled new forecasts that are somewhat higher on inflation and GDP growth this year but lower than before on assumed growth in 2011.  Consumer prices rose 3.6% in the 12 months to January, but unemployment around 12% constitutes a 2-1/2 year high.  Inflation is targeted at 2.5%, give or take a percentage point, and the projected CPI range is in the lower portion of that band (1.3-2.2%) this year and centered on it for 2011.  Central bank officials observe more risk aversion in world financial markets since their last meeting and continuing low bank lending at home.  Still, a recovery is underway as attested by on-year industrial production growth of 7.4%.  The statement alludes to eventual rises in interest rates but is completely unspecific about the timing of any tightening.

Published minutes today of the last Swedish Riksbank policy meeting do not shy away from discussing when rate increases ought to begin.  The rate path of the majority puts the onset of tightening in the fourth quarter of this year, but half of the Board members — Oberg, Nyberg, and Wickman-Parak — say that consideration of a rate hike could occur as early as July.  Svensson counterbalanced that view with a continuing dissent in favor of a key rate of zero versus its current actual level of 0.25% and a glide path that remains 25 basis points below the majority’s indicated trajectory preference.

Copyright Larry Greenberg 2010.  All rights reserved,  No secondary distribution without express permission.

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