Poland: NBP holds fire on rates in December
December 5, 2017
As market analysts had largely expected, the National Bank of Poland (NBP) kept the reference rate unchanged at a record low of 1.50% at its 4-5 December monetary policy meeting. In addition, the Bank held the Lombard rate unchanged at 2.50%, the deposit rate at 0.50% and the rediscount rate at 1.75%. The Bank has kept the reference rate unchanged for more than two and a half years.
The solid pace of economic expansion and manageable inflationary pressures were behind the Bank’s decision to hold fire. GDP growth accelerated in Q3 mainly on the back of buoyant household spending and a stronger external sector. Solid private consumption continued to be buttressed by a declining unemployment rate, rising employment and wages increasing robustly. Domestic demand was spurred by a revival in fixed investment; it gained considerable steam in Q3 on the back of growing inflows of EU funds, which fell short of expectations in H1. Moreover, available figures for Q4 for industrial production point to another healthy quarter of expansion in the industrial sector. Retail sales expanded strongly in October, suggesting consumer spending will continue to lead growth in the final quarter.
Despite solid data on the real economy, inflation in November accelerated to just 2.5%, thus matching the NBP’s 2.5% target, and core inflation remained comfortably low. Although inflation hit a 5-year high, it was driven by higher food and energy prices and the Bank does not consider such drivers to be a cause for concern about inflation rising substantially going forward as they are quite volatile. This makes it likely that the spike in inflation will be only transitory and that inflation will ease in the coming quarters.
The absence of clear forward guidance suggests that rates will most likely be held steady until the end of 2018. The Bank expects the current policy stance to be consistent with a level of inflation close to the Bank’s 2.5% target over the next two years, and healthy GDP growth and macroeconomic stability. Although some upward price pressures could result from robust wage increases, these will likely be offset by subdued external inflationary pressures.
The next monetary policy meeting is scheduled for 9-10 January.