Poland: NBP holds fire on rates in October
October 6, 2017
As largely anticipated by market analysts, the National Bank of Poland (NBP) kept the reference rate unchanged at a record-low of 1.50% at its 3–4 October 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%. With October’s decision, the Bank has now kept the reference rate unchanged for more than two and a half year
The solid pace of economic expansion and manageable inflationary pressures were behind the Bank’s decision to hold fire. GDP growth continued to expand notably in Q2 mainly on the back of buoyant household spending, virtually matching Q1’s reading. Economic activity has continued to benefit from solid private consumption, in turn buttressed by a record-low unemployment rate, rising employment and robustly rising wages. Moreover, there are signs that domestic demand is also being spurred by a revival in fixed investment: the latest data on construction activity suggests that inflows of EU funds, which fell short of expectations in H1, are increasing substantially. Moreover, available figures for Q3 for industrial production point to another healthy quarter of expansion in the industrial sector. Despite encouraging data on the real economy, however, inflation in September accelerated to just 2.2%, thus below the NBP’s 2.5% target, and core inflation remained comfortably low. Moreover, in spite of representing a 7-month high, inflation was fueled by higher wages, which the Bank considers not to be a cause for structural concern as the labor market still has large reserves of idle workers. This makes it likely that the spike in inflation will reveal only transitory and that inflation will ease in the coming quarters.
The absence of clear forward guidance and the Central Bank Governor’s declarations after the meeting suggest that rates will most likely be held steady until the end of 2018. The Bank’s 2.5% inflation target supports the dovish stance that going forward, the probability that inflation will overshoot the target in the medium term is low. Although some upward price pressures could result from bustling domestic activity, these will likely be offset by an external environment of subdued inflation.
The next monetary policy meeting is scheduled for 7—8 November.