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Poland Monetary Policy July 2021

Poland: Central Bank stands pat in July

At its meeting on 8 July, the National Bank of Poland (NBP) left the reference rate on hold at 0.10%, which was in line with market expectations. The NBP also kept the lombard rate at 0.50%, the deposit rate at 0.00% and the rediscount rate at 0.11%. Moreover, the Bank reaffirmed it will continue purchasing government bonds in the secondary market, in line with its quantitative easing program. It will also continue to discount credit aimed at refinancing loans granted to businesses by banks.

The temporary nature of the recent spike in inflation, as well as the Bank’s desire to continue supporting the economic recovery, were behind the decision to keep interest rates unchanged. The recovery is well underway, although the spread of new Covid-19 variants threatens to weigh on activity. New GDP forecasts released by the NBP see the economy expanding 5.0% this year (previous forecast: +4.1%) and 5.3% in 2022 (previous forecast: +5.0%). On the price front, inflation remained above the upper bound of the Bank’s 1.5%–3.5% target range in June, but the Bank believes this was mainly due to temporary factors independent from domestic monetary policy. The NBP’s new outlook projects inflation to average 4.1% in 2021 (previous forecast: 3.1%) and to decline to 3.3% next year (previous forecast: 2.8%).

Looking ahead, the majority of our panelists see the Bank leaving the reference rate on hold at 0.10% for the remainder of the year. However, Rafal Benecki, chief Poland economist at ING, has penciled in a hike:

“In our opinion, in the following months the Council will gradually change its approach under the influence of new CPI readings, or the November NBP projection. Even the NBP governor, who seemed to be more dovish than many MPC members, shows a clear trend toward earlier hikes. We stick to our non-consensus call of a rate hike in Q4 2021 (most likely alongside the next inflation projection in November).”

The next monetary meeting is scheduled for 24 August.

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