The National Bank od Poland decided to keep interest rates unchanged, as widely expected. The reference rate is still at the level of 2.50%.
The monetary authorities noticed that monetary policy of the major central banks remains expansionary. In June, the European Central Bank decreased interest rates and announced additional liquidity providing operations to banks in order to stimulate lending.
In the opinion of the Monetary Policy Council gradual economic recovery continues in Poland. At the same time, a recent decline in some business climate indices points to a possible slowdown in economic recovery.
The National Bank of Poland published its macroeconomic forecasts. In line with the July projection of the central bank inflation will be at the level of 0.2% in 2014 (as compared to 1.1% in the March projection), 1.3% in 2015 (as against 1.8%) and 2.2% in 2016 (as against 2.5%). The annual GDP growth - in line with the July projection - will amount to 3.7% in 2014 (as compared to 3.6% in the March projection), 3.6% in 2015 (as against 3.8%) and 3.4% in 2016 (as against 3.6%).
The central bank dropped its forward guidance for flat rates to the end of the third quarter from its monthly statement and said inflation may stay very low in the coming months and may even temporarily fall below zero. The governor of the National Bank of Poland Marek Belka said that dropping of forward guidance did not mean that one should expect a rate cut in September. In his opinion the probability of a cut at the next meeting is very low. He sees no risk of prolonged deflation in Poland. In the opinion of the Polish Monetary Policy Council in the following quarters, the ongoing economic recovery and improvement in the labour market should support a gradual increase in inflation and its approaching the target in the projection horizon. The Council said that its decisions in the coming months would depend on the incoming information, which impacts the assessment of the outlook for economic growth and inflation in the medium term.
We expect that inflation will remain low in the coming months. We see deflation in July as a result of high base last year and acceleration in inflation as soon as at the end of the year (November, December). In our opinion inflation is likely to return to the target of the central bank (2.5%) in the second half of 2015. We do not expect interest rate cuts. There is no majority supporting such a move in the MPC. However, much worse than expected recent data on industrial output and retail sales are worrying.
The NBP governor Marek Belka repeated that he did not plan to resign after a leaked tape recording revealed him to be discussing the removal of the finance minister, as well as using profanity when describing bank colleagues.
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