Poland: NBP holds reference rate at record low despite outcome of Brexit vote
July 6, 2016
Although uncertainty has increased in the aftermath of the United Kingdom’s vote for Brexit, the National Bank of Poland (NBP) decided to keep the reference rate at the record low of 1.50% at its 5–6 July monetary policy meeting. The Bank has left the rate unchanged for over a year and July’s decision matched market analysts’ expectations. This was the first monetary policy meeting for new Governor Adam Glapinski.
In the accompanying statement, the NBP outlined that there is uncertainty regarding the future of the global economy following the UK’s vote to leave the European Union. For Poland, steady credit growth to the non-financial sector and a rise in disposal income should boost GDP growth going forward, however, the effects of the UK referendum has increased risk for economic activity. Regarding inflation, the NBP commented that there is a lack of inflationary pressure in the economy. Consumer prices are lingering in negative territory due largely to external factors, although this had not adversely affected the economy so far.
Looking forward, the NBP sees prices remaining in negativity territory and GDP growing steadily in the coming quarters. That said, the Bank added that aggravated risk concerning the effects of the UK’s referendum and the global economy are clouding the outlook for Poland’s economy and price developments. However, given the available data, the NBP stressed that it believes that the current level of the reference rate is, “conductive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic balance.”
Commenting on the new Governor’s first meeting, Nora Szentivanyi, Executive Director, Emerging Markets Research at JPMorgan, points out:
“[The] meeting confirmed that the MPC under Prof. Glapinksi remains very comfortable with its conservative stance and view of the world. We think this could change only in a scenario where growth disappoints further, but the MPC appears to be comfortable with a 3.2% type scenario, so growth likely needs to drop to a sub-3%oya trend, which is below our base case (3.0% in 2016 and 3.1% in 2017). This could happen for example if the Euro area decelerated more than anticipated as a consequence of Brexit. Under such circumstances, we think the MPC’s preferred response would include some form of unconventional easing, as it could more effectively spur private investment. But given the relatively high level of Polish rates, policy rate cuts could also be part of the easing mix, in our view.”