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Poland Monetary Policy July 2018

Poland: NBP holds policy rate unchanged in July

As widely expected by market analysts, the National Bank of Poland (NBP) kept the reference rate unchanged at a record-low 1.50% at its 10–11 July 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%. It has been more than three years since the Bank last moved the reference rate.

Recent economic data reinforced officials’ view that rates will be kept stable at least through next year. Upbeat second-quarter metrics point to further wage gains and the continued resilience of the labor market. Nevertheless, inflation’s slow climb toward the midpoint of the Bank’s target of 2.5% plus or minus 1.0 percentage point suggests rate hikes will be off the table—as hoped for by the majority of the Monetary Policy Council (MPC)—for the next several quarters. Inflation ticked up from 1.7% to 1.9% in June, still a far cry from warranting monetary tightening. Moreover, officials emphasized that core inflation remains low and largely brushed off the recent weakening of the zloty.

Barring any unforeseen circumstances, policymakers are likely to stay put over the coming quarters as their projections for moderating growth materialize and inflation slowly inches up toward the Bank’s midpoint target. Moreover, officials doubled down on their dovishness, hinting that their lowered projections for inflation could mean stable rates through 2020—extending NBP chief Adam Glapinski’s recent guidance that rates would be kept on hold “possibly into 2020”. Most FocusEconomics Consensus Forecast panelists also agree that officials are unlikely to halt the early-stage comeback made by fixed investment in recent quarters, and a majority see the Bank holding fire on interest rates through much of next year.

Commenting on July’s announcement, Nora Szentivanyi, economist at JPMorgan, noted:

“Despite today’s overwhelming dovish message, we stick to our view that the NBP will end up hiking in [the fourth quarter of 2019]. We maintain that the start of ECB rate normalization in September 2019, according to our Euro area economists, along with a sustained move higher in inflation close to the 2.5% target, will trigger the first NBP rate hike shortly thereafter; our base case is for the first 25-basis point hike to be delivered in November 2019 after the parliamentary elections.

The next monetary policy meeting is scheduled for 4–5 September.

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