National Bank of Poland

December 7, 2011

At the Narodowy Bank, the Monetary Policy Council decided to leave its reference interest rate unchanged for the fifth straight meeting.  A 25-basis point hike in early June to 4.5% culminated a series of four such hikes in the first half of 2011.  Officials consider that dose of restraint “significant” and are not inclined to do more now.  It reversed 40% of the stimulus provided from 250 basis points of reduction administered between November 2008 and June 2009.  To be sure, on-year CPI inflation of 4.3% remains well above a medium-term target of 2.5%, but a statement from officials today expresses confidence that slower economic growth next year due to global strains, a soft domestic labor market, fiscal cutbacks, and the lagged impact of higher interest rates in 1H11 will cause inflation to recede eventually.  Amid high regional uncertainty and downside risks, officials are naturally reluctant to raise interest rates again now.  However, “the Council does not rule out the possibility of further monetary policy adjustments in the future, should the outlook for inflation returning to the target deteriorate.”  So the rate bias remains upward, but it is more conditional than expressed by Icelandic monetary officials, who predict that rates will rise eventually.  In Poland, further rate increases are contingent upon inflation overshooting expectations.

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



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