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RPP lowers rates in February


The Monetary Policy Council (RPP) cut interest rates by 25 basis points at its February session, the National Bank of Poland (NBP) announced. The decision, which brings the main reference rate down to 3.75%, was in line with market expectations.

In its commentary, the Council notes that incoming data show global economic activity remains at a low level. In the fourth quarter of 2012 GDP growth in the United States decelerated, while the eurozone most probably remained in recession. At the same time, some leading indicators for the developed economies improved slightly in recent months, and there are signs of recovery in some developing countries as well. On the other hand, the softness of economic activity is causing inflation to fall in many economies.

In Poland, meanwhile, the fourth quarter of 2012 saw a (widely predicted) further slowdown of economic growth, due most notably to a weakening of consumer demand, as well as to a decline in investments, which however was smaller than in Q3. Net exports remained the main engine of economic growth, even though their contribution was less than in Q3. Labour market figures for December provided more evidence of a slowing economy, with a decrease in employment, a rise in the jobless rate, and sluggish wage growth. And bank lending both to households and to businesses decelerated further as well.

In December consumer inflation dropped to 2.4% y-o-y and was broadly in line with the NBP’s target (2.5% y-o-y). At the same time, core inflation and producer inflation continued to decline, confirming the absence of demand and cost pressures in the economy. Inflationary expectations among households also abated.

According to the Council, incoming data confirm a significant deterioration of economic conditions in Poland, which is having a dampening effect on wage and inflationary pressures. Economic growth is set to remain modest in the coming quarters, raising the risk that inflation will stabilise below the central bank’s target rate in the medium term.

Under these circumstances, the RPP decided to lower interest rates again, in order to support growth and reduce the risk of inflation undershooting the target.

The Council adds that its decisions in the coming months will depend on new data on the economy and inflationary pressures, including the March inflation projection of the central bank.

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