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RPP holds rates steady in October


The Monetary Policy Council (RPP) kept interest rates unchanged at its October session, the National Bank of Poland (NBP) announced. The decision, which leaves the main reference rate at 4.75%, confounded market expectations of a rate cut in response to weakening economic figures.

In its commentary, the Council notes that global economic activity in the third quarter of 2012 remained at a low level, with the eurozone in recession, the US economy growing at a modest pace and with many emerging economies experiencing a further slowdown. The poor outlook for global growth has checked the rise in commodity prices, but they remain at a heightened level.

In Poland, meanwhile, data for July and August brought further evidence of deceleration in the economy, with slower growth in industrial output and retail sales and a continuing slump in construction. The latest set of labour market figures showing a decline in employment and sluggish pace of wage growth in the enterprise sector, and a gradual increase in the unemployment rate, also points to a possible weakening of private sector demand, as do most business confidence indicators.

Lending to households continues to moderate, with a further decline in consumer loans, while lending to business is showing only modest growth.

The consumer price index (CPI) decelerated again in August, to 3.8% y-o-y, remaining however above the central bank’s target of 2.5% y-o-y. Core inflation (excluding food and energy) also decreased, and so did inflationary expectations among households and businesses.

The Council expects inflation to continue to slow down in the months ahead, helped by a combination of more favourable base effects and softening demand, but reckons it will stay above the target until the end of 2012. The economic slowdown should contribute to the CPI falling back to the target in the medium term, though the high global commodity prices will continue to represent an upward risk to inflation.

Taking all these factors into account, the Council decided to hold interest rates intact in October. It added, however, that it would loosen monetary policy if incoming data, including the central bank’s new inflation projection due out in November, confirmed that the economic slowdown was durable and if the risk of inflationary pressures picking up was limited.

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