By Central Bank News
The National Bank of Poland (NBP), which earlier today kept interest rates unchanged, will consider cutting interest rates if the economy weakens further and inflationary pressures remain low.
Financial markets have become confident that the Polish central bank is shifting to an easing bias due to a deteriorating outlook. In addition, the bank’s governor, Marek Belka, said last month that the Monetary Policy Council was now discussing rate cuts rather than rate hikes.
“Should the incoming data confirm further weakening of economic conditions, and should the risk of increase in inflationary pressure be limited, the Council will consider adjustment of monetary policy,” the NBP said in a statement following news that the bank kept the reference rate steady at 4.75 percent.
The central bank said the council decided to keep rates unchanged because a slowdown in Poland’s economy would help keep down inflation.
Although inflation eased to an annual rate of 4.0 percent in July from 4.3 percent in June, it remains above the central bank’s target of 2.5 percent.
The bank expects inflation to gradually decline in coming months, but it said households’ inflation expectations remain elevated and a recent rise in global commodity prices poses an upward risk.
In its July forecast, the bank looked for inflation of 3.9 percent in 2012, down from 2011’s 4.3 percent.
The NBP said economic growth in the second quarter – an annual rate of 2.5 percent – was slower than expected and this was accompanied by lower corporate lending along with lower lending to households.
The bank expects Poland’s GDP to expand by 2.9 percent in 2012, down from 4.3 percent in 2011.
The central bank last changed its interest rates in May, when it surprised markets by raising the
reference rate by 25 basis points.
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