National Bank of Poland Implements Second Straight Rate Cut and Signals Possibly More Ease to Come

December 5, 2012

The decrease in the interest rates should support economic activity and thus reduces the risk of inflation falling 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.

Poland’s Monetary Council as expected reduced its reference interest rate to 4.25% and spoke of the possibility that current above-target CPI inflation of 3.4% might drop below target in the medium term because of a marked slowdown of domestic demand and overall GDP growth.  The inflation goal is 2.5%. Not only did real GDP growth slow sharply to 1.4% last quarter, but retail sales, industrial production and construction monthly figures indicate that weakness has persisted more recently.  Four rate hikes totaling one percentage point were administered in 2011 and a fifth 25-bp move occurred this past May.  Today’s action, follows a similar move in November and leaves the Polish reference interest rate at 4.25%, its level in May 2011 and just 75 basis points above the Great Recession trough.  Between November 2008 and June 2009, the main interest rate was slashed from 6.5% to 3.5%.

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

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