Polish Central Bank Interest Rates Left Unchanged Again as Expected

April 28, 2010

The key seven-day reference interest rate of the Narodowy Bank has been at 3.5% since a 25 basis point reduction in June 2009.  That was the sixth cut since November 2008 and brought the cumulative magnitude of ease to 250 bps from a cyclical peak of 6.0%.  Analysts anticipate the onset of rate increases to occur some time in the final quarter of 2010, but European fiscal problems may delay action.  GDP advanced by a pretty decent 3.1% between the final quarters of 2008 and 2009, and industrial production was 12.3% higher in March than a year earlier.  However, the labor market remains very weak with a 13% jobless rate, and CPI inflation decelerated from 3.6% in March 2009 to 2.9% in February 2010 and 2.6% last month, which was a mere tenth above the target mid-point.  A statement today from central bank officials observes improvement in both consumer and business confidence but also notes that bank lending is still falling.   Construction and retail sales were weaker last quarter, and the Greek fiscal crisis injects added uncertainty into the economic picture.  Poland’s deficit and debt to GDP ratios were 7.1% and 51.0% in 2009, and the current account is in the red as well, averaging about 3.5% of GDP.  The zloty’s about 17% stronger against the dollar than a year ago.  This is a major reason for the decline of inflation, but officials do not want the currency to keep strengthening from present levels and intervened on April 9.

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



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