By Central Bank News
The central bank of Poland, which earlier today cut its benchmark interest rate, said it would cut rates further if the economic slowdown is protracted and inflationary pressures remained limited.
The National Bank of Poland (NBP) said it cut its reference rate earlier today by 25 basis points to 4.25 percent to support economic activity and reduce the risk that inflation falls below the bank’s target due to lower economic growth that will tend to restrain wages and inflationary pressures.
The Polish central bank, which in November also said it would cut rates if it was clear the economic slowdown was protracted and inflation low, said data had confirmed the slowdown.
“At the same time, the Council assesses that GDP growth will remain moderate in the coming years, which poses a risk of inflation declining below the NBP’s inflation target in the medium term,” the central bank said after a meeting of its Monetary Policy Council.
Last month the bank cut its 2012 growth forecast to 2-2.6 percent and forecasts 2013 growth of 0.5-2.5 percent, sharply down from 2011’s 4.3 percent Gross Domestic Product growth.
The NBP, which targets inflation of 2.5 percent plus/minus one percentage points, has cut rates by 50 basis points this year and said it may cut further.
“Should the incoming information confirm a protracted economic slowdown, and should the risk of an increase in inflationary pressure remain limited, the Council will further ease monetary policy,” it said, repeating its statement from November.
Poland’s GDP rose by only 0.4 percent in the third quarter from the second for annual growth of 1.4 percent, down from a 2.5 percent growth rate in the second quarter, with a decline in domestic demand deepening on the back of lower investment and consumption growth.
The bank added that new data, such as industrial production, retail sales and a fall in construction output, “indicate that at the beginning of 2012 Q4 activity remained low.”
It added the unemployment rate had risen – to 12.5 percent in October from 12.4 percent in September – which contributes to wage growth deceleration.
Poland’s inflation rate eased to 3.4 percent in October from 3.9 percent in September and most of the core inflation measures also declined, “which confirms weakening of demand and cost pressures in the economy,” the bank said.
