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RPP delivers deeper rate cut in March


The Monetary Policy Council (RPP) slashed interest rates by 50 basis points at its March session, the National Bank of Poland (NBP) announced. The decision, which brings the main reference rate down to 3.25%, surpassed marked expectations, which were for a smaller, quarter-point reduction.

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 remained in recession. At the same time, activity in some of the major emerging economies appears to have quickened and there are signs of improving conditions in some developed countries.

In Poland, meanwhile, GDP growth decelerated substantially in the fourth quarter of 2012, due chiefly to a drop in consumer demand, with the pace of decline in investments moderating. Net exports remain the sole engine of economic growth, though their positive contribution was smaller than in Q3.

In the first weeks of 2013 activity in the country remained at a subdued level, latest data indicate, with employment continuing to shrink and with the jobless rate on an upward path, holding up wage growth. And lending to both households and businesses remains weak.

Consumer inflation eased more sharply than expected in January, to 1.7% y-o-y, i.e. below the central bank’s target rate of 2.5% y-o-y, and core inflation also stayed at a low level, indicating the absence of major demand pressures in the economy. And inflation expectations of households decreased.

The Council’s decision was also informed by a fresh inflation and GDP growth projection from the central bank, prepared earlier this month, which sees both measures at lower levels in the period 2013-2015 than the previous document released in November 2012. Inflation is now projected to be in the region of 1.3-1.9% in 2013, for example, rather than 1.8-3.1%, while growth is expected to come in at between 0.6-2.0% this year, compared with 0.5-2.5%.

According to the Council, incoming data confirm continued weakness of economic activity in Poland, which is accompanied by the absence of wage pressures and weak inflationary pressures. A certain recovery is possible in the coming quarters, but the rate of GDP growth is likely to remain modest, keeping inflationary pressures under control.

Taking into account the risk that inflation might stabilise below the central bank’s target rate in the medium term, the Council decided to reduce rates by 50 basis points. The decision complements the cycle of monetary easing started in November 2012, the RPP says in its statement, adding that the significant loosening of monetary policy over this period will help keep inflation around the target rate in the medium term while supporting economic growth.

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