Poland: Policymakers hold fire in November
November 7, 2018
As widely expected by market analysts, the National Bank of Poland (NBP) kept the reference rate unchanged at a record-low 1.50% at its 6–7 November monetary policy meeting. In addition, policymakers held the Lombard rate unchanged at 2.50%, the deposit rate at 0.50% and the rediscount rate at 1.75%. It has been more than three years since the NBP last moved the reference rate.
The announcement contained few surprises in light of policymakers’ recent insistence that rates would be left unchanged for some time. As such, instead the NBP’s upwardly-revised inflation forecasts took the spotlight. Despite a handful of early indicators pointing to a nascent economic slowdown, the NBP hiked its inflation forecasts for next year—above its target of 2.5% plus or minus 1.0 percentage point—and, in turn, called into question the timing of any short-term monetary tightening. That said, Governor Adam Glapinski downplayed the revision as an “exaggerated” response to the government’s planned hike in electricity tariffs (in 2019) and reiterated his expectations for rates to stay put through next year.
Forward guidance was kept largely intact, and the NBP is likely to hold off on any moves for several quarters. That said, any tightening by the European Central Bank (ECB)—which has committed to keeping rates low until at least the third quarter next year—could prompt a response from Polish policymakers in an effort to mitigate the spread. A number of FocusEconomics analysts currently see a first rate hike in the fourth quarter next year, followed by a period of sustained tightening.
Commenting on the announcement, Marcin Kujawski, an economist at Nomura, noted:
“It is likely to take time to build a majority to back a hike. Based on our observations, we think eventually it will be the ECB that could tip the balance in favor of raising interest rates. Governor Glapinski reiterated today that decisions taken in Frankfurt are very important for Poland’s policymakers. At the same time, he did not seem to be too convinced that the ECB will begin to hike interest rates in 2019 after it ends asset purchases this year. As such, we think if the ECB delivers on our expectations for a hike in September 2019, it could change Glapinski’s mind. Therefore, we pencil-in a 25-basis-point hike in November 2019.”
This was the last monetary-policy meeting of the year; the next one is scheduled for early January.