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Poland Monetary Policy October 2020

Poland: Central Bank stands pat in October

At its meeting on 7 October, the National Bank of Poland (NBP) kept the reference rate at its historic low of 0.10%, marking the fourth hold in a row and largely matching market expectations. Moreover, the NBP left the lombard rate unchanged at 0.50%, the deposit rate at 0.00% and the rediscount rate at 0.11%. In addition, the Bank reaffirmed its quantitative easing program, with the continued purchasing of government bonds in the secondary market. It will also continue to discount credit granted to businesses by banks aimed at refinancing loans.

The decision to hold the rate at its record low reflected the Bank’s efforts to cushion the fallout from the pandemic, support the economic recovery and combat muted inflationary pressures. Although available data for the third quarter points to a recovery in economic activity, figures for retail sales and industrial output in August indicated a slowdown in the pace of the rebound. Furthermore, the resurgence of new Covid-19 cases globally has increased uncertainty with regard to the economic outlook and weighed on market sentiment. Meanwhile, on the price front, while a flash estimate showed inflation rose to 3.2% in September (August: 2.9%), thus moving above the midpoint of the Bank’s target range of 1.5%–3.5%, price pressures have remained largely contained lately due to muted domestic demand and low global oil prices.

Going forward, the Bank’s monetary policy stance is likely to remain largely accommodative, in order to mitigate the fall in employment and to support the recovery in activity, which will also benefit from robust fiscal support and new EU funding.

Commenting on the outlook for monetary policy, Rafal Benecki, chief Poland economist at ING, reflected:

“We keep the view that currently the monetary policy in Poland, besides mitigating the negative effects of the pandemic waves and preventing a CPI slide (that starts to sound strange), is focused on supporting the government in financing its high borrowing needs. Hence we do not expect any changes in monetary policy at least until 2022. […] The higher-than-expected inflation in September, mainly due to the core components, creates the risk of a higher headline CPI next year. We believe, however, that as long as the headline CPI does not permanently exceed the upper limit above the CPI target, the MPC will decide not to tighten monetary policy.”

The next monetary policy meeting is scheduled for 4 November.

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