Poland maintains rate but moves closer to further easing

    Poland's central bank maintained its monetary policy reference rate at 2.0 percent but moved closer to cutting the rate if the country remains in the grip of deflation and economic activity in the country and surrounding countries slows further.
    The National Bank of Poland (NBP) dropped its guidance from December that its 50 basis points rate cut in October and economic growth would limit this risk of inflation remaining below its 2.5 percent target but repeated that it would "not rule out further adjustment of monetary policy."
    The central bank pointed to the uncertainty surrounding the country's economy with economic growth in the fourth quarter of 2014 possibly slowing slightly as industrial output had almost stagnated in November while construction and assembly output continued to fall and growth in retail sales decreased. However, bank lending to firms and households continued to be steady.
    Poland's Gross Domestic Product expanded by 0.9 percent in the third quarter from the second for annual growth of 3.3 percent, down from 3.5 percent in the second.
    The unemployment rate rose slightly to 11.5 percent in December, the second month in a row of a rising jobless rate, but the NBP said data pointed to a further rise in corporate employment.
    Polish consumer prices fell by 0.6 percent in November, the fifth consecutive month of deflation and below expectations. Most indices for core inflation also fell, the NBP said, confirming the lack of demand while a continued decline in producer prices illustrated the lack of cost pressures.


     The National Bank of Poland issued the following statement:

"The Council has decided to keep the NBP interest rates unchanged at:
 reference rate at 2.00% on an annual basis;  lombard rate at 3.00% on an annual basis;
 deposit rate at 1.00% on an annual basis;
 rediscount rate at 2.25% on an annual basis.
Global economic activity growth remains moderate, although the situation varies across countries. The United States observed continued recovery in 2014 Q4, and the data on GDP in 2014 Q3 have been revised upwards. In contrast, activity growth in the euro area has continued to be slow, and the 2015 growth forecasts have been revised downwards in the recent months. In the largest emerging economies, economic activity growth has also remained weak as for these countries. Russia’s output growth has probably decreased close to zero.
In the past month, oil prices continued to decline sharply. Along with the moderate global economic growth, this has been conducive to inflation persisting at very low levels in many countries, and contributed to deflation occurring in the euro area.
Major central banks continue their expansionary monetary policy and keep interest rates at historically low levels. The ECB and the Bank of Japan are running asset purchase programmes. At the same time, expectations of a gradual interest rate increase in the United States have strengthened which have contributed to a depreciation of the emerging market currencies, including the zloty. Heightened risk aversion in the international financial markets persists.
In Poland, economic activity growth in 2014 Q4 may have slowed down slightly. In November, industrial output growth decreased to near-zero levels, while construction and assembly output continued to fall. At the same time, retail sales growth decreased. Growth in bank lending – both to enterprises and households – continued at a steady pace.
Labour market data point to a further rise in corporate employment, which supports the decline in seasonally-adjusted unemployment. At the same time, wage pressure remains limited, as indicated by continued moderate wage growth in the corporate sector.

In November, CPI inflation remained negative and was below expectations at -0.6% y/y. This was accompanied by a decrease in the majority of core inflation indices, which confirms the absence of demand pressure in the economy. The decline in producer priceshas also continued, indicating a lack of cost pressure in the economy. This is accompanied by very low inflation expectations of enterprises and households.

The Council decided to keep the NBP interest rates unchanged. The Council highlights that uncertainty regarding economic conditions in the environment of the Polish economy persists. If the expected period of deflation extends, which would increase the risk of inflation remaining below the target in the medium term, and incoming data confirm a slowdown in economic activity as well as weak growth in the environment of the Polish economy persists, the Council does not rule out further adjustment of monetary policy. "

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