Wednesday, July 3, 2013

Poland cuts rate by 25 bps for third time in a row

    Poland's central bank cut its policy rate by 25 basis points to 2.50 percent, its third cut in a row, along with its other main interest rates. The National Bank of Poland's (NBP) monetary policy council will explain its decision at a press conference later today.
    The NBP's reference rate was cut to 2.50 percent, the lombard rate was cut  to 4.0 percent, the deposit rate to 1.0 percent, and  the rediscount rate to 2.75 percent.
    The central bank has now cut rates by 175 basis points this year in response to weaker-than-expected economic growth due to the drag from recession in the euro area.
    In June, the NBP said uncertainty over the scale and timing of the euro area's economic recovery could adversely affect the Polish economy but it did not issue a specific guidance for rates though the central bank's governor, Mark Belka at the news conference said the easing cycle may be ending.
    However, he also added that a clearer direction for policy would be issued after today's meeting after the council reviews the latest economic projections.
    Last month, a member of the monetary council said the central bank should avoid cutting rates further due to the risk of weakening the Polish zloty further and triggering capital outflows.

    Like other emerging markets, the zloty has weakened since early May and is down almost 6.0 percent this year, quoted today at 4.34 to the euro. The NBP intervened in early June to limit volatility.
    Poland's Gross Domestic Product rose by only 0.1 percent in the first quarter from the fourth quarter for annual growth of 0.5 percent, the weakest rate in four years. Last month the central bank said indicators showed that second quarter growth was also weak.
    Poland's economy recovered from the global financial crises with growth rising in 2010 but in 2012 growth slowed sharply due to lower exports to the euro area, with average economic growth slowing to 1.9 percent growth, down from 4.5 percent in 2011.
    The central bank started cutting rates in November 2012 but this was criticized as being too late to cushion the impact from the euro zone recession. In April this year the NBP froze rates to review the impact of its easing but then started cutting rates again in May.
    The NBP has forecast growth this year of 1.3 percent.
    Poland's inflation rate fell further to 0.5 percent in May from 0.8 percent in April, well below the central bank's target of 2.5 percent, plus/minus one percentage point.


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