Wednesday, April 15, 2015

Poland maintains rate, sees continued deflation

    Poland's central bank maintained its monetary policy reference rate at 1.50 percent, as expected, saying deflation will continue in coming quarters due to the sharp fall in commodity prices but stable economic growth, low interest rates, a good situation in the labor market and an expected recovery in the euro area should limit the risk of inflation remaining below target in the medium term.
    The National Bank of Poland (NBP), which said it was concluding its monetary easing cycle when it cut the policy rate by 50 basis points last month, added that there was no demand pressure in the economy right now and combined with low commodity prices and very low inflation expectations, this was contributing to a continuation of deflation.
   In February Poland's consumer prices fell by 1.6 percent, the eight consecutive month of deflation, and the steepest drop in at least 30 years due to the fall in fuel and food costs.
    But economic growth remains stable, the NBP said, with Gross Domestic Product in the first quarter of this year probably slightly higher than the fourth quarter of last year as domestic demand continues to rise, fueled by good financial conditions and an improving labour market.
    Poland's GDP expanded by 0.7 percent in the fourth quarter from the third quarter of 2014 for annual growth of 3.1 percent, down from 3.3 percent. The unemployment rate eased to 11.7 percent in March from 12.0 percent in February and January.
    Last month the NBP forecast 2015 inflation of minus 1.0 to 0.0 percent and 2016 inflation of minus 0.1 percent to 1.8 percent. The NBP targets inflation at midpoint of 2.5 percent, within a tolerance range of 1.5 to 3.5 percent. Inflation has been below its lower bound since February 2013.

    The National Bank of Poland issued the following statement:

"The Council decided to keep the NBP interest rates unchanged at:
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, with a slight acceleration expected in 2015. In the euro area economic growth remains slow compared to other developed economies, although incoming information signals gradual improvement of economic conditions. In the United States, despite the recent deterioration of some indicators, recovery is expected to continue. In turn, economic outlook for Poland’s eastern trading partners, i.e. Russia and Ukraine, remains unfavourable.

After a sharp and long-lasting fall, global commodity prices have stabilised recently. This has weakened disinflationary forces in many countries. However, global price growth remains very low, and in the majority of European economies it is negative. In these conditions, major central banks are keeping interest rates close to zero and the ECB has launched government bond purchases. This has contributed to some strengthening of the zloty.

In Poland, economic activity remains stable, with GDP growth in 2015 Q1 probably slightly higher than in 2014 Q4. Rising domestic demand fuelled by improving labour market situation, good financial condition of enterprises and stable expansion in lending, remains the main driver of economic growth. In turn, the relatively low, although accelerating, growth in demand on the part of Poland’s main trading partners and the continued uncertainty about the prospects for demand are factors limiting economic activity in Poland.

Amid moderate growth in demand and gradual improvement in labour market conditions, there is no demand pressure in the economy, and nominal wage growth remains moderate. Combined with low commodity prices, this is contributing to continuing deflation, both in terms of consumer and producer prices. Alongside that, inflation expectations continue to be very low.

In the opinion of the Council, in the coming quarters price growth will remain negative, mainly due to the previously observed sharp fall in commodity prices. At the same time, the adjustment of monetary policy in March with continuing stable economic growth, an expected 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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