Poland holds rate, risk to growth from emerging markets

    Poland's central bank left its benchmark reference rate steady at 1.50 percent, as expected, cautioning that "the possibility of a further deterioration in economic conditions in the emerging economies remains a significant risk for global growth."
    The National Bank of Poland (NBP), which cut its rate by 50 basis points last year, also said the monetary policies of the U.S. Federal Reserve and the European Central Bank (ECB) "continue to diverge," with these decisions and the sharp decline in crude prices leading to "temporary asset price volatility in the international financial markets."
    In Poland, the NBP said domestic demand is helping economic growth though uncertainty among businesses about the international outlook is curbing demand, which otherwise is supported by a robust labor market, optimism amongst consumers and good financial conditions in enterprises.
    But due to the sustained negative output gap and moderate wage growth, there is no inflationary pressures and falling energy prices are the main reason for continuing deflation, the bank added.
    Poland's inflation rate rose to minus 0.5 percent in December from minus 0.6 percent in November as the country remains stuck in deflation.
    Although the NBP said it still expects inflation to slowly rise in coming quarters, it acknowledged that the renewed drop in commodity prices would keep consumer prices growing less than expected.
    Poland's Gross Domestic Product grew by an annual 3.5 percent in the third quarter of 2015, up from 3.3 percent in the second quarter.
    Today's meeting by the central bank's 10-member Monetary Policy Council is the last before five new members take up their positions at the February meeting. In March another three new members join the MPC and a new governor will be named in June.
   On Wednesday two designated members of the MPC said the current rate was serving the economy well, statements that were seen to contrast with the view of the ruling Law and Justice Party that has called for lower rates.

 
    The National Bank of Poland issued the following statement:

 "In the euro area economic recovery continues, yet activity growth remains moderate. In the United States – despite slightly weaker recent data – good economic conditions prevail and GDP growth in 2016 is expected to be slightly higher than in 2015. In turn, Russia and Brazil remain in recession, and the outlook for these economies has further deteriorated. In China, the data released in 2015 Q4 point to economic growth stabilization, albeit at a lower level than in the previous years. The possibility of a further deterioration in economic conditions in the emerging economies remains a significant risk for global growth.

In the recent period, prices of oil and other energy commodities in the world markets have once again sharply declined. As a result, inflation in many economies – including in the euro area – remains close to zero. At the same time, in some economies – including the United States – core inflation is significantly higher than growth in consumer prices, which is driven by the ongoing economic recovery.

Against this background, the monetary policies of the Federal Reserve and the EBC continue to diverge. The Federal Reserve has increased its interest rates after seven years of keeping them at a near zero level. In contrast, the ECB has eased its monetary policy again, mainly by extending the period of the asset purchase programme and expanding its scope. The decisions of the major central banks and the sharp decline in crude oil prices have led to temporary asset price volatility in the international financial markets.

In Poland, stable economic growth continues, driven mainly by domestic demand. Demand growth is supported by robust labour market, optimistic consumer sentiment and good financial condition of enterprises. However, demand growth is curbed by enterprises’ uncertainty about the outlook for economic growth abroad.

Due to the sustained negative output gap and only moderate wage growth in the economy there is no inflationary pressure in the economy. The annual growth rates of consumer prices and producer prices remain negative, although the scale of deflation is gradually declining. Falling energy commodity prices in the global markets are the main driver behind continuing deflation. Inflationary expectations are still low.

In the opinion of the Council, consumer price growth will slowly increase in the nearest quarters, yet due to renewed decline in commodity prices, consumer price growth may be lower than anticipated. So far, the continuing deflation has not had a negative impact on the decisions of economic agents. Gradual increase in price growth will be supported by closing of the output gap amidst improving economic conditions in the euro area and a tight domestic labour market.
The Council decided to keep the NBP interest rates unchanged, assessing that – given the available data and forecasts – the current level of interest rates helps to keep the Polish economy on a sustainable growth path and ensure macroeconomic balance.

A more comprehensive assessment of the outlook for price developments and economic growth in the coming quarters will be possible after the Council gets acquainted with the March projection of inflation and GDP." 

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