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RPP slashes rates in November


The Monetary Policy Council (RPP) cut interest rates by 25 basis points at its November session, the National Bank of Poland (NBP) announced. The decision, which brings the main reference rate down to 4.50%, was in line with market expectations.

In its commentary, the Council notes that global economic activity remained at a low level in the third quarter of 2012, with growth in the eurozone at close to zero, only modest expansion in the United States, and an apparent stabilisation of growth at a lower rate in the main emerging economies. At the same, high commodity prices mean inflation remains at an elevated level in many countries.

In Poland, meanwhile, September witnessed declines in industrial output and retail sales (at constant prices), and a deepening slump in construction, providing further evidence of decelerating economic activity. The labour market situation is tough as well, with declining employment, slowing wage growth, and rising joblessness. Most leading indicators point to softening demand in the private sector, and lending to households and businesses is weakening.

The consumer price index (CPI) was 3.8% y-o-y in September, remaining above the central bank’s target of 2.5% y-o-y, but core inflation and the producer price index continued their downward trend, and inflationary expectations of households and businesses abated.

An updated inflation projection for the Council puts this year’s consumer price growth at 3.7-3.9%, compared with 3.6-4.2% projected in July, and 1.8-3.1% in 2013, rather than 2.0-3.4%. GDP growth is now forecast to be in the region of 2.0-2.6% in 2012, instead of 2.3-3.6%, and 0.5-2.5% in 2013, compared with 1.0-3.2%.

The incoming data thus confirm a significant slowdown of economic activity in Poland and a consequent easing of inflationary and wage pressures. They suggest that in the absence of monetary policy intervention, GDP growth in Poland will remain below its potential rate in the coming years, whereas inflation is expected, on current trends, to return to the target in the coming quarters, and possibly to drop below it in the medium term.

Taking all these factors into account, the Council decided to reduce interest rates to support economic growth and to head off the risk of inflation slowing below the target in the medium term. The RPP added that a further loosening of monetary policy was possible in case fresh data confirmed that the slowdown was durable and inflationary risks remained limited.

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