Wednesday, February 3, 2016

Poland maintains rate, sees rising core inflation

    Poland's central bank left its reference rate steady at 1.50 percent, as expected, saying inflation will remain negative in coming months due to "depressed prices of global energy commodities" but core inflation should gradually rise, supported by stable economic growth amid improving economic activity in the euro area and favorable labor market conditions.
    The National Bank of Poland (NBP), which cut its rate by 50 basis points in 2015, added that a more comprehensive assessment of the outlook for inflation and growth will be possible after the monetary policy council sees the March inflation and growth forecast.
    At their previous meeting in January, some members of the bank's monetary policy council called for a rate increase in coming months while others said rate cuts should be considered because growth in domestic demand is slow and consumer prices depressed.
    Eight of the council's 10 members are due to leave office by the end of February as terms expire.
    In its November forecast, the central bank estimated deflation of minus 0.9-0.8 in 2015 and inflation of 0.4-1.8 percent in 2016.
    Poland's headline inflation rate declined by an annual 0.5 percent in December, up from minus 0.6 percent in November while core inflation eased to 0.23 percent from 0.25 percent.
    The NBP, which targets inflation of 2.50 percent, plus/minus 1.0 percentage point, said there were no inflationary pressures due to the negative output gap and moderate wage growth, and inflation expectations remain very low.
    "However, the persisting deflation has not yet adversely affected decisions of economic agents," it said.
    In its last forecast, the central bank estimated 2015 economic growth of 2.9-3.9 percent and forecast growth of 2.3 to 4.3 percent for 2016.
    In the third quarter of 2015, Poland's Gross Domestic Product grew 0.9 percent from the second quarter and the central bank said estimates suggest that growth rose in the fourth quarter, as domestic demand, helped by stable consumption and rising investment, drove growth.
    The government's statistical office has estimated real GDP growth in 2015 of 3.6 percent compared with 3.3 percent in 2014.
    Last month ratings agency Standard & Poor's surprisingly cut Poland's credit rating, arguing that the new conservative government had weakened the independence of key institutions.
    S&P also said it could lower the rating again if the independence of institutions like the central bank was further weakened.

    The National Bank of Poland issued the following statement:

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

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 close to last year’s level. In China, economic growth has been decelerating gradually, while Russia and Brazil remain in a deep recession. Concerns have increased that economic growth in emerging market economies might weaken further, which is a key downside risk to global economic conditions. In consequence, prices of many financial assets have declined in the global markets. This was accompanied by a weakening of emerging market currencies, including the zloty.

Prices of oil and other energy commodities remain low. In effect, inflation in many economies including the euro area stays close to zero. At the same time, in some advanced economies including the United States core inflation is markedly higher than headline consumer price growth.

Against this background, the monetary policies in the United States and the euro area are diverging. The ECB continues its financial asset purchases and indicates that the scale of monetary expansion might be increased in the coming months. At the same time, the Federal Reserve’s interest rates are still expected to increase.

In Poland, preliminary estimate of national accounts for 2015 suggests that GDP growth likely increased in 2015 Q4. Domestic demand, fuelled by stable consumption growth and rising investment, continues to be the key driver of economic growth. Growth is supported by favourable labour market conditions, positive consumer sentiment, sound financial standing of enterprises and high capacity utilization.

As the output gap remains negative, and wage growth is only moderate, currently there are no inflationary pressures in the economy. The annual growth in both consumer and producer prices remains negative. Yet, the persistence of deflation results mainly from the strong fall in global energy commodity prices in recent quarters. Inflation expectations are still very low. However, the persisting deflation has not yet adversely affected decisions of economic agents.

In the Council’s assessment, CPI inflation will remain negative in the coming months due to the depressed prices of global energy commodities. At the same time, a gradual increase in core inflation is expected and will be supported by stable economic growth amid improving economic activity in the euro area and favourable labour market conditions.

The Council decided to keep the NBP interest rates unchanged, assessing that given the available data and forecasts the current level of interest rates is conducive to keeping the Polish economy on the 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."


Post a Comment