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Interest rate cut in Q2 2012 earliest


Despite the European Central Bank’s latest decision to further ease monetary policy with a 25-point cut in interest rates, which brought them to a record low, our view is that the Monetary Policy Council (RPP) is unlikely to take a similar step in the near future. First, consumer inflation (CPI) keeps running well above the upper end of the central bank’s target band, and core inflation is in a steady upward movement. Furthermore, the Polish economy has so far shown considerable resilience in the face of the downturn, with GDP growth for the third quarter coming in at above 4%. Although the deteriorating economic situation in the eurozone and latest surveys of business conditions raise the likelihood of a clear slowdown of economic activity in Poland in 2012, no interest rate changes are likely until these concerns begin to materialise and inflation starts to ease off, especially considering the substantial depreciation of the zloty in recent months, which from the viewpoint of monetary policy has similar effects to a rate cut, while at the same time posing a significant upward risk to inflation. Therefore we expect a change in the RPP’s policy stance and a mild easing of monetary policy (by 25 basis points) to occur in the second quarter of 2012 at the earliest.

Paweł Sionko
Construction Market Analyst, PMR

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