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Poland Monetary Policy December 2019

Poland: Central Bank stands pat in December

The National Bank of Poland (NBP) kept the reference rate unchanged at a record low of 1.50% at its 3–4 December monetary policy meeting, as had been widely expected. In addition, the Central Bank held the Lombard rate stable at 2.50%, the deposit rate at 0.50% and the rediscount rate at 1.75%. The Bank has stood pat since ending an easing cycle in March 2015.

Moderate inflation, softening but still-solid domestic demand and the ultraloose monetary policy stance of the European Central Bank supported the Bank’s decision. Headline inflation inched up from 2.5% in October to 2.6% in November, stoked by high food price growth and despite falling energy prices, landing marginally above the midpoint of the Central Bank’s target range of 2.5% plus or minus 1.0 percentage point. Meanwhile, growth eased to a near three-year low in Q3, dragged on by the prolonged economic weakness in Germany’s industrial sector, although robust consumer spending ensured it remained solid nonetheless. Meanwhile, similar dynamics seem to be at play in the the fourth quarter: Downbeat business confidence and PMI readings in October-November point to prolonged weakness in investment activity, while a tight labor market and healthy wage gains should continue to fuel household spending.

Looking ahead, the Bank maintained a positive assessment of the country’s economic conditions, although a challenging external environment poses downside risks. Consequently, FocusEconomics analysts see the Bank keeping the rate broadly unchanged next year, as it attempts to balance sustained inflation with weaker external demand and the ECB’s loose monetary stance.

Commenting on the likely direction of monetary policy ahead, Piotr Poplawski, senior economist for Poland at ING, noted:

“We remain confident that rates will remain unchanged in 2020 and see scope for a cut in late 2021 – if slowing internal demand dampens the inflationary pressure. Data available since the previous meeting supports our call for a gradual slowdown in the economy. […] Given a persistent rise in the core component, CPI may even exceed the upper target band (3.5%) in case of a supply shock (eg, another drought). But even in this case the MPC should remain unchanged.”

The next monetary policy meeting is scheduled for 7–8 January.

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