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RPP slashes rates in December


The Monetary Policy Council (RPP) cut interest rates by 25 basis points at its December session, the National Bank of Poland (NBP) announced. The decision, which brings the main reference rate down to 4.25%, was in line with market expectations.

In its commentary, the Council notes that global economic activity remains at a low level, and that while GDP growth in the United States accelerated in Q3, the eurozone is in recession and the main emerging markets are posting subdued growth rates by their standards. At the same, high commodity prices mean inflation remains at an elevated level in many countries.

In Poland, meanwhile, GDP figures for the third quarter confirmed a significant deceleration of economic activity. The decline in domestic demand deepened as investment decreased and consumption growth ground to a halt, while the contribution of inventory changes remained negative. The sole remaining engine of growth are net exports, thanks to a combination of lower imports and continued positive export growth. More recent data showing feeble increases in industrial output and retail sales and shrinking construction output indicate that activity remained weak into Q4 as well.

The slowdown is showing up in deteriorating labour market conditions. Weakening job creation and rising unemployment are keeping wage growth in check.

At the same time, lending to households has softened further, with continued declines in consumer loans and with slower growth in business loans.

In October the consumer price index (CPI) eased to 3.4% y-o-y, remaining however above the central bank’s target of 2.5% y-o-y. Most measures of core and producer inflation also slowed, an indication of abating demand and cost pressures. And households’ inflationary expectations decreased.

With incoming data providing further evidence of a marked slowdown of economic activity in Poland that is having a cooling effect on wage demands and inflationary pressures, and with GDP growth set to remain modest in the coming quarters, raising the prospect of inflation falling below the target in the medium term, the RPP has decided to cut interest rates to support growth and limit the risk of inflation undershooting the target. A further loosening of monetary policy is possible if new data confirm that the slowdown is durable and if inflationary risks remain limited.

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