Wednesday, January 10, 2018

Poland holds rate as H1 growth seen down from H2 2017

      Poland's central bank left its benchmark reference rate at 1.50 percent, as widely expected, saying the country's economy will continue to face favorable conditions in coming quarters although growth in the first half of 2018 will probably be lower than in the second half of 2017.
      The National Bank of Poland (NBP), which has maintained its rate since March 2015, also reiterated its recent guidance that the current level of interest rates are conducive to keeping the country's economy on a path of sustainable growth while inflation is expected to remain close to the bank's inflation target over the forecast horizon.
       Despite an easing of Polish inflation to 2.0 percent in December from 2.5 percent in November, some economists are looking to a rate hike as soon as in the first half of this year as inflation begins to accelerate on the back of continued solid economic growth.
       But in his December press conference, NBP Governor Adam Glapinski restated that rates are likely to be kept on hold until the end of this year as the rise in the exchange rate of the zloty has acted as monetary tightening.
       In today's statement the monetary council acknowledged that wages are growing faster than in previous quarters but core inflation, which excludes food and energy, remains low.
       Core inflation rose to only 0.9 percent in November from 0.8 percent in October, well below the central bank's target of 2.50 percent, plus/minus 1 percentage point.
       Wages grew by an annual rate of 6.5 percent in November, down from 7.4 percent in October.
       In November the central bank raised its 2018 inflation forecast to 1.6-2.9 percent from July's
forecast of 1.1-2.9  percent but cut the 2019 forecast to 1.7-3.7 percent from 2.3-3.6 percent.
       For 2017 the NBP forecast inflation of 1.9-2.0 percent compared with a previous forecast of 1.6-2.3 percent.
      "In Poland, incoming data point to continued good economic conditions," the NBP said, driven by consumer demand on the back of rising employment and wages, benefits and good sentiment.
       Polish exports are also growing while public sector investment has also recovered.
       Poland's Gross Domestic Product expanded by an annual 4.9 percent in the third quarter, up from 4.0 percent in the second quarter.
       In November the central bank forecast 2017 growth of 3.8-4.6 percent compared with its July forecast of 3.4-4.7 percent. For 2018 the central bank forecast growth of 2.8-4.5 percent, up from 2.5-4.5 percent while the 2019 forecast was unchanged at 2.3-4.3 percent.
       The zloty has risen steadily against the euro in 2017 and rose further today when it was trading at 4.18, unchanged this year but up 5.3 percent since the start of 2017.

      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%.

The global economic conditions continue to improve. Data in the euro area signal further economic recovery, driven by an improvement in the labour market conditions, very good sentiment of economic agents, and a stronger world trade growth. Also in the United States economic conditions remain favourable. In China, in turn, incoming data indicate a slight slowdown in GDP growth.
Despite ongoing global recovery, inflation abroad remains moderate, on the back of persistently low domestic inflationary pressure in many countries. At the same time, prices of certain commodities, including oil, have risen in recent months.
The European Central Bank keeps interest rates close to zero, including the deposit rate below zero, while still purchasing financial assets. The US Federal Reserve increased interest rates in December and continues to shrink its balance sheet.
In Poland, incoming data point to continued good economic conditions. Growth continues to be driven primarily by consumer demand, supported by rising employment and wages, disbursement of benefits and very good consumer sentiment. This is accompanied by a recovery in investment, mainly in the public sector. Growth in economic activity is also supported by strong external demand, reflected in significant exports growth.
Annual consumer price growth declined and stands at a moderate level. At the same time although wage growth is faster than in the previous quarters core inflation net of food and energy prices remains low.
In the Council’s assessment, favourable economic conditions in the Polish economy will continue in the next quarters. Yet, GDP growth will probably be lower than in the second half of 2017. Taking into account the current information, the Council judges that inflation will remain close to the inflation target over the projection horizon. As a result, the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic stability. "


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