Wednesday, June 3, 2015

Poland says improving growth to limit risk of low inflation

    The Polish central bank earlier today maintained its benchmark reference rate at 1.50 percent because the gradual pick-up in economic growth, helped by the euro area's recovery and a good situation in the labor market, will reduce the risk of inflation remaining below its target.
     But the National Bank of Poland (NBP), which in March cut its rate by 50 basis points and said that would complete its easing cycle, still expects inflation to remain negative in coming months
though the slight increase in fuel and food prices recently has limited the scale of deflation.
    However, producer price growth remains "markedly negative," inflation expectations continue to ver very low and there is no demand pressure in the economy due to moderate demand and a continuing negative output gap, the bank added.
    Poland's inflation rate rose slightly to minus 1.1 percent in  April from minus 1.5 percent in March, but was still the 10th consecutive month of deflation and substantially below the central bank's midpoint target of 2.5 percent, plus/minus one percentage point.
    In March the central bank forecast 2015 inflation of minus 1.0 percent to 0.0 percent and 2016 inflation of minus 0.1 to a positive 1.8 percent.
    Poland's Gross Domestic Product expanded by 1.0 percent in the first quarter of this year from the fourth quarter for annual growth of 3.6 percent, up from 3.3 percent in the fourth quarter.
    The unemployment rate eased to 11.2 percent in April from 11.7 percent in March and 12 percent in January and February.

    The National Bank of Poland issued the following statement from the meeting of its Monetary Policy Council on June 2 and 3"

"The Council decided to keep the NBP interest rates unchanged:
reference rate 1.50% on an annual basis; lombard rate 2.50% on an annual basis;
deposit rate 0.50% on an annual basis;
rediscount rate 1.75% on an annual basis.

Growth of global economic activity remains moderate, although a slight acceleration is expected in 2015. In the euro area a gradual recovery is underway, although economic growth remains low. In the United States, despite the weakening of economic data in the first months of 2015, the recovery is expected to continue in the coming quarters. At the same time, in most major emerging economies activity is weakening, and the economic outlook for Poland’s eastern trading partners, i.e. Russia and Ukraine, remains unfavourable.

After a sharp and long-lasting fall, oil prices have risen slightly in recent months. This has weakened disinflationary forces in many countries, fuelling increase in price growth in the euro area. However, price growth in the global economy remains very low, and in many European economies it is negative. In these conditions, major central banks are keeping interest rates close to zero and the ECB is continuing its asset purchase programme.

In Poland, real GDP growth accelerated in 2015 Q1 (to 3.6% from 3.3% in 2014 Q4). Increase in domestic demand, including consumption and investment, fuelled by an improving labour market situation, good financial condition of enterprises and stable expansion in lending has remained the main driver of economic growth. Economic recovery has been also spurred by accelerating exports, supported by improvement in economic activity in the euro area. April saw, however, a decline in industrial output growth and retail sales growth, although this was most likely temporary.

Due to the moderate growth in demand and the continuing negative output gap, there is no demand pressure in the economy. At the same time, low commodity prices and moderate nominal wage growth are contributing to the continued lack of cost pressure. As a result, the annual growth of consumer prices remains negative, although the slight increase in fuel and food prices in the recent period has limited the scale of deflation. However, producer prices growth remains markedly negative, and inflation expectations continue to be very low.

In the opinion of the Council, the annual price growth will remain negative in the coming months, mainly due to the earlier sharp fall in commodity prices. At the same time, the expected gradual acceleration of economic growth, amidst recovery in the euro area and good situation in the domestic labour market, reduce the risk of inflation remaining below the target in the medium term. Therefore, the Council decided to keep NBP interest rates unchanged."


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