Poland Monetary Policy May 2016


Poland: NBP holds reference rate at record low

May 6, 2016

Amid a lack of inflationary pressure in the economy, the National Bank of Poland (NBP) decided to keep its reference rate at the record low of 1.50% at its 5–6 May monetary policy meeting. The Bank has left the rate unchanged for over a year and April’s decision matched market analysts’ expectations. The decision comes despite large changes to the monetary policy council—eight of the 10 members have been replaced since the start of the year—and against a backdrop of monetary easing in the region.

In its accompanying statement, the NBP outlined that the decisions come amid moderate global growth and a slowdown in emerging economies. The Bank pointed out that subdued growth along with low prices for commodities have limited price pressures globally and have even led to negative prices in certain regions, including the Eurozone. As a result, the European Central Bank (ECB) is holding interest rates at very low levels and purchasing financial assets. Regarding Poland, the NBP commented that growth may have slowed slightly in Q1 but continues to be supported by robust domestic demand. The Bank added that consumer prices are lingering in negative territory, mainly due to external factors, but the Bank does not see this adversely affecting the economy. Looking forward, the Bank sees prices remaining negative, but it expects stable growth to continue and, accordingly, decided to hold the policy rate.

The Bank’s decision to maintain rates comes in contrast to other central banks in the region, which have recently eased monetary policy. Poland has not experienced inflation since June 2014 and the inflation rate has undershot the NBP’s target of 2.5% for the past three years. These developments, along with a recent appreciation in the zloty, have led to an argument for an easing in monetary policy. Evghenia Sleptsova, Economist at Oxford Economics, adds:

“Persisting deflation and additional easing in the Eurozone (and now also in Hungary) make Polish monetary policy excessively tight. This argues for monetary easing, particularly as the zloty has stabilised since the S&P downgrade in January. Despite a sharp downward revision of the central bank’s inflation forecast (from 1.1% to -0.4%), the majority of new MPC members argue for keeping policy rates on hold. We believe that the central bank will need to ease rates by 25-30bp in 2016, but the risks are rising that monetary policy will remain tight.”

Meanwhile, President Andrzej Duda nominated Adam Glapinski to replace NBP’s current governor Marek Belka. Commenting on the appointment, Peter Attard Montalto, Senior Economist at Nomura, points out:

“We view Adam Glapinski as a soft hawk, a sensible moderate, who largely believes in the status quo of the existing monetary policy framework and who will protect the independence of the central bank. He has shown openness in the past on considering unorthodox measures, but only after detailed consideration and research by NBP staff (and hence why we see something like LTRO at end year at the earliest). He is also open to the use of reserves for facilitating FX mortgage conversion. More broadly, we see him as likely a better, simpler communicator than current President Belka, who was often viewed as over critical and cynical of markets and the financial press.”

Against this backdrop, FocusEconomics Consensus Forecast panelists expect the policy rate to end 2016 at 1.40%. For 2017, the panel sees the rate ending the year at 2.09%.

Author: Angela Bouzanis, Senior Economist

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Poland Monetary Policy Chart

Poland Monetary Policy May 2016

Note: NBP Reference Rate in %.
Source: National Bank of Poland (NBP).

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