Wednesday, June 8, 2016

Poland maintains rate at final meeting chaired by Belka

    Poland's central bank maintained its benchmark reference rate at 1.50 percent, as widely expected, confirming its guidance that the current level was "conducive" to keeping the country on sustainable and balanced path of growth.
    The National Bank of Poland (NBP), whose current governor will step down on June 11, also confirmed that it expects inflation to remain negative in coming quarters due to the fall in global commodity prices while economic growth is expected to "remain stable" following a temporary slowdown as consumer demand continues to drive growth.
    Poland's inflation rate rose slightly to minus 1.0 percent in May from minus 1.1 percent in April, extending the cycle of deflation that began in July 2014.
    In its March inflation report, the NBP lowered its forecast for 2016 consumer prices to fall by an average of minus 0.4 percent from the November 2015 forecast of an increase of 1.1 percent. The central bank targets inflation of 2.50 percent, plus/minus 1 percentage point.
    For 2017 the central bank expects inflation of 1.3 percent, down from the previous forecast of 1.5 percent, and in 2018 inflation of 1.7 percent.
    In the first quarter of this year Poland's Gross Domestic Product contracted by 0.1 percent from the fourth quarter for annual growth of 3.0 percent, down from 4.3 percent in the previous quarter.
    Poland's economy is projected to expand by 3.8 percent this year, by 3.8 percent in 2017 and by 3.4 percent in 2018.
    Poland's zloty has depreciated slightly this year against the euro, trading at 4.32 today, down 1.16 percent since the start of this year.
    Adam Glapinski, a member of the central bank's Monetary Policy Council from 2010 until February this year, was last month picked by the president to replace Marek Belka whose six-year term expires this week. On March 1 Glapinski was appointed to the bank's management board.
    Glapinski said in a parliamentary hearing on May 20 that cutting interest rates further would threaten financial stability and he would ensure that the central bank remains independent.
   The NBP has kept its rate steady since March 2015, when it cut it by 50 basis points.

    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%.

Global economic growth remains moderate, while uncertainty remains about its outlook. In the euro area, a gradual recovery continues, although weak economic conditions in emerging countries have a negative impact on the region’s economic outlook. In the United States, despite a slowdown in GDP growth in 2016 Q1, moderate economic growth is expected to continue. In turn, in China incoming data indicate a further deceleration of economic growth, while Russia and Brazil remain in recession.

Prices of oil and many other commodities in the global markets despite some increase in recent months are still markedly lower than in previous years. The main factors behind very low consumer price growth in many economies are low commodity prices, combined with moderate global economic activity. In some economies including the euro area price growth is negative.

The European Central Bank is keeping the interest rates at a very low level, including the deposit rate below zero, and continues financial asset purchases. At the same time, the Federal Reserve after increasing the interest rates in December is keeping the rates unchanged, while indicating a possible interest rate rise in the future.

In Poland, GDP growth slowed down in 2016 Q1. This was driven primarily by the fall in investment, which was partly related to the completion of projects co-financed with EU funds under the previous financial framework. At the same time, growth of consumer demand remained stable, supported by growing employment, improving consumer sentiment and growth in lending to households. Taking into account the continuing sound financial standing of enterprises and their high capacity utilization, the fall in investment and thus also the weakening of economic growth at the beginning of 2016 was most likely temporary. The increase in consumer spending resulting from the launch of the "Family 500+" programme will also contribute to GDP growth in the coming quarters. Yet, the uncertainty about economic conditions abroad continues to be a risk factor for domestic economic activity.

With negative output gap and moderate growth of average nominal wages, currently there is no inflationary pressure in the economy. Annual consumer price growth and producer price growth remain negative. External factors particularly the earlier sharp fall in global commodity prices and low price growth in the environment of the Polish economy continue to be the main sources of deflation. This is accompanied by very low inflation expectations. The persisting deflation has not adversely affected decisions of economic agents so far.

In the Council’s assessment, price growth will stay negative in the coming quarters due to the earlier substantial decline in global commodity prices. At the same time, GDP growth is expected to remain stable in the coming quarters, following a temporary deceleration early this year. Consumer demand will continue to be the main driver of economic growth, supported by rising employment, forecasted acceleration of wage growth and an increase in social benefits. This notwithstanding, the downside risks to the global economic conditions and the volatility of commodity prices remain the sources of uncertainty for the domestic economy and price developments.

The Council maintains its assessment 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 maintaining macroeconomic balance."


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