RPP keeps rates steady in August

2010-08-27

The Monetary Policy Council (RPP) left interest rates unchanged at its August session, the National Bank of Poland (NBP) announced. The decision was in line with market expectations.
In its commentary on the session, the Council emphasised the weakening tempo of recovery in some of the largest economies, especially in the United States. On the other hand, economic growth accelerated in the second quarter of the year in Germany, although less dynamically in the eurozone as a whole. However, the positive prospects for this economy may be clouded by the risk of diminishing foreign demand, which makes economic growth rate uncertain over the coming quarters.
Meanwhile, economic growth in Poland appeared to be stabilising, with a continued strong upward trend in industrial output, sluggish growth in construction-assembly output, and a further improvement on the labour market in July, the RPP announced. However, the second quarter of the year saw slower wage growth in the national economy despite slightly higher wage increases in the enterprise sector. At the same time, bank lending to companies remains subdued, chiefly due to weak demand for credit.
In July the consumer price index (CPI) slowed again, to 2% y-o-y, thus remaining below the central bank’s inflationary target (2.5% y-o-y). The Council expects inflation to accelerate gradually in the coming months, driven mainly by higher food and energy prices. Furthermore, the hike in VAT rates in 2011 will also have some impact on prices, although its modest scale means the resulting rise in inflation should be moderate.
The RPP also called on the government to take decisive steps to reduce the general government deficit and contain the burgeoning public debt, so as to safeguard macroeconomic stability and enable Poland to meet the criteria of euro membership.
Between November 2008 and June 2009 the Council slashed interest rates by a total of 250 basis points. As a result, the main reference rate currently stands at 3.50%, an all-time low.