Wednesday, February 6, 2013

Poland says rate cut limits risk of inflation below target

    Poland's central bank said a reduction in interest rates earlier today should boost economic activity and thus reduce the risk of inflation remaining below the bank's target.
    The National Bank of Poland (NBP), which cut its key reference rate by 25 basis points to 3.75 percent, said fresh data had confirmed a "considerable slowdown" in Poland's economy and this was resulting in limited wage and inflationary pressure.
    "At the same time, the Council assesses that GDP growth will remain moderate in the coming quarters, and therefore, the risk of inflation running below the NBP inflation target in the medium term persists," the central bank said, explaining its decision earlier today to cut its rates.
    The NBP, however, did not signal any future moves, a sign that it is likely to pause and assess the impact of four rate cuts in a row. Last year it cut rates by 50 basis points and has cut by the same amount so far this year.
    In January the NBP had said it did not rule out further rate cuts if the economic slowdown was protracted and there were limited risks of higher inflationary pressures.
    Poland's inflation rate eased further to 2.4 percent in December, the lowest rate of the year and in line with the central bank's target of 2.5 percent, plus/minus one percentage point.
    The central bank said both core inflation and producer price growth continued to fall, "which confirms further weakening of demand and cost pressures in the economy." Households' inflationary expectations also declined.
    Poland's Gross Domestic Product expanded by only 0.4 percent in the third quarter from the second quarter and the NBP said fresh data showed a further slowdown in the fourth quarter, as it expected.
    Annual third quarter growth was 1.4 percent, down from the second quarter's 2.3 percent.
    The bank said global economic activity also remained slow, which is conducive to a decline in inflation in many countries.
    Economists forecast that Poland's economy slowed to growth of just over 2 percent in 2012, down from 2011's 4.3 percent, and will slow further to some 1.5 percent growth this year.



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