Surprise Rate Cut in Poland

May 8, 2013

Officials had suggested earlier this spring that scope for further monetary easing had been exhausted but today decided to slice the key 7-day central bank interest rate from 3.25% to a record low of 3.0%.  Reductions between November 2012 and March 2013 had taken 150 basis points off the rate, and most analysts were not predicting further rate relief. 

The justification for additional easing in a new statement from the Monetary Policy Council was based on a perceived higher risk of “inflation staying markedly below the target in the medium term.”  Growth has been more subdued than officials were assuming.  Inflation has dropped to 1.0%, well below the target of 2.5%.  “Uncertainty about the pace and timing of the expected recovery in the euro area has increased,” and expected inflation reported by households has decelerated.  Today’s statement does not rule out even more interest rate cuts, asserting that future decisions will be data-driven.  An unspoken factor in today’s action may have been mounting criticism of the central bank’s stance from government officials.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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