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Poland Monetary Policy November 2019

Poland: Central Bank holds its ground in November

The National Bank of Poland (NBP) kept the reference rate unchanged at a record low of 1.50% at its 5–6 November monetary policy meeting, as had been widely expected. In addition, the Central Bank held the Lombard rate stable at 2.50%, the deposit rate at 0.50% and the rediscount rate at 1.75%. The Bank has stood pat since ending an easing cycle in March 2015.

Softening inflation, a solid domestic economy and monetary policy loosening by the European Central Bank were behind the Bank’s decision. Headline inflation inched down from 2.6% in September to 2.5% in October, on lower food and fuel prices, landing on the midpoint of the Central Bank’s target range of 2.5% plus or minus 1.0 percentage point, although the moderation could prove temporary. Meanwhile, the strong fall in manufacturing PMI coupled with a further decline in business confidence in October suggest the economy is starting to feel the pinch of prolonged economic weakness in Germany. On the other hand, tight labor market conditions and rapid wage growth should be continuing to fuel domestic demand.

Looking ahead, the Bank maintained a positive assessment of the country’s economic conditions, although it recognized the weak external backdrop represents a clear downside risk. Consequently, FocusEconomics analysts see the Bank keeping the rate broadly unchanged next year, as it balances sustained inflation with weaker external demand and the ECB’s loose monetary stance.

Commenting on the likely direction of monetary policy ahead, Rafal Benecki, Chief Economist at ING, noted:

“We think the MPC’s determination to hold rates flat rose recently. The main argument is the slowdown in the Eurozone which starts to affect the service sector, the widespread easing by DM and EM central banks as well as prospects of domestic GDP returning to potential next year. The risk of CPI breaking the upper ceiling above the NBP target still exists, but recent food prices moderation and another freeze of retail energy prices should make the CPI peak in 1Q20 a bit lower that we thought before.”

The next monetary policy meeting is scheduled for 3–4 December.

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