Poland Holds Rates Steady
The National Bank of Poland has just completed it’s scheduled 2 day monetary policy meeting. The 2.5% base interest rate remains for a 15th consecutive month despite some predictions that a quarter point cut was on the cards this time around.
The medium term prognosis for Polish interest rates is for a cut short series of cuts that would take the base rate to a record low of 2.0%. There have been persuasive arguments leading into this month’s meeting that justify an imminent cut but these were met be equally persuasive arguments in favour of holding off on monetary easing at least in the short term. It is widely believed that the National Bank’s Monetary Policy Committee is split fifty fifty in it’s outlook.
The recent publication of the final second quarter GDP growth rate for Poland revealed that economic expansion moderated over the three month period. At an annualized 3.3% Poland experienced some enviable growth in Q2 but this needs to be viewed in the context of 3.4% expansion during the first quarter and also the fact that it represents the first slowing of the pace of expansion in six quarters. The Ukrainian situation bears some of the responsibility for economic concerns in Poland but the latest escalation would not have been captured within the Q2 GDP figure.
The latest inflation data from Poland has seen the persistent fall in price growth activity finally turn into price contraction. July’s inflation number was -0.2% but more concerning is the fact that the rate has fallen month after month for over a year. Without any let up in the rate at which price growth is declining there is little option open to the National Bank other than to introduce some monetary easing measures and the recent pause in GDP expansion might just provide the right opportunity for this take place without risking an economic overheating.
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