Wednesday, April 10, 2013

Poland holds rate, decisions to depend on inflation, growth

    Poland's central bank said decisions about interest rates in coming months will depend on how far inflation will fall below the bank's target and the level of economic activity in the country.
    The National Bank of Poland (NBP), which earlier today left its policy rate steady at 3.25 percent, said economic activity may gradually improve in coming months but it "will probably remain moderate, which will continue to contain inflationary pressure."
    Last month the NBP signaled that it was likely to have concluded its five-month-old rate cutting campaign, but today's statement indicates the bank is now much more uncertain about its next move and leaning toward further rate cuts if inflation remains below the bank's target.
    In February, Poland's inflation rate tumbled to 1.3 percent in February from 1.7 percent in January, the lowest rate since early 2006, and well below the NBP's inflation target of 2.5 percent target, plus/minus one percentage point.
    "There was also a decline in core inflation measures, which confirms weak demand pressure prevailing in the economy," the central bank said, adding inflationary expectations among households and businesses also declined further.
    Economic activity in Poland in the first quarter of this year was low, the NBP said, with lending to the corporate sector and households also low.

    The unemployment rate rose to a six-year high of 14.4 percent in February and this is constraining wage growth, the bank said. 
    Polish retail sales rose marginally in February from January, but on an annual basis they were down 0.8 percent.
     In the fourth quarter of 2012, Gross Domestic Product grew by 0.2 percent from the third quarter for annual growth of 1.1 percent.
    Global economic activity also remains low, despite a gradual improvement, the central bank said, adding that activity in Germany - a key trading partner - rebounded at the start of the year but corporate sentiment had deteriorated more recently.
    The central bank started cutting rates in November and since then it has cut by a total of 150 basis points, most recently by 50 basis points in March.
   "The Council's decisions in the following months will depend on the assessment of the incoming data with regard to the probability of inflation remaining markedly below the NBP inflation target and regarding economic activity," the NBP said.


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