Poland Monetary Policy


Central Bank continues tightening cycle in June

At its latest monetary policy meeting held on 7-8 June, the Central Bank raised interest rates by 25 basis points to 4.50%, in a move that was broadly expected by the market. The decision marks the fourth consecutive meeting in which the Central Bank has tightened the reins after it began withdrawing monetary stimulus from the economy in January 2011. Throughout the tightening cycle, interest rates have risen a cumulative 100 basis points. As a result, the Monetary Policy Council (MPC) signaled a possible halt in its hawkish stance by stating that ?the substantial monetary policy tightening implemented since the beginning of 2011 should enable inflation to return to the target in the medium term.? The Bank justified its decision by pointing to sustained high economic growth in Poland (Q1: +4.4% year-on-year) as well as the robust performance of Germany's economy, which is Poland's main trading partner. Poland's relatively strong growth was coupled with falling unemployment, which declined by 0.5 percentage points in April to reach 12.6%. Although the Central Bank recognized that global economic growth ?continued at a relatively high level?, it stressed that fiscal imbalances in the Eurozone periphery continue to add uncertainty to the economic outlook. In addition to preventing the economy from overheating, the hawkish stance taken by policymakers aims to counter the inflationary pressures stemming from higher food and oil prices. In April, inflation stepped up to 4.5%, exceeding the 1.0 percentage point tolerance margin around the Central Bank's 2.5% target. Policymakers warned that ?the annual CPI inflation rate will continue at a heightened level, mainly due to the previously observed strong growth in global commodity prices.? More recent CPI data from May confirm the Central Bank's opinion, with inflation jumping to 5.0%.


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