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RPP cuts rates in January


The Monetary Policy Council (RPP) slashed interest rates by 25 basis points at its January session, the National Bank of Poland (NBP) announced. The decision, which brings the main reference rate down to 4%, was in line with market expectations.

In its commentary, the Council notes that global economic activity stayed at a low level in Q4 2012, with only moderate growth in the US and with the eurozone remaining in recession, though in some of the main emerging markets the economic deceleration appears to have bottomed out. At the same time, sentiment on the world financial markets improved, helped by further monetary loosening by central banks.

In Poland, meanwhile, latest data and readings of business indicators suggest that activity remained low in recent months. November, the latest month for which data are available, was particularly poor, with declines in industrial output and construction activity and with retail sales exhibiting barely positive growth in real terms. Labour market figures provide further evidence of a weakening economy: employment is declining, the jobless rate rising and wage growth remains sluggish.

Bank lending both to households and to businesses has continued to decelerate, as well.

Consumer inflation eased to 2.8% y-o-y in November, moving closer to the central bank’s target of 2.5% y-o-y. There was also a further decline in core inflation and in the producer price index, another indication of weak demand and cost pressures in the economy. Inflationary expectations among businesses and households have abated.

The Council takes the view that GDP growth will remain modest in the coming quarters, and with wage demands and inflationary pressures at a limited level, there is a risk that inflation will run below the target in the medium term. Under these circumstances, the RPP decided to cut interest rates again, in order to support growth and limit the risk of inflation undershooting the target. It added that a further loosening of monetary policy was possible if new data confirmed that the slowdown was durable and if inflationary risks remained limited.

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