Poland holds rate, inflation may take hit from slowdown

September 2, 2015

By CentralBankNews.info
    Poland’s central bank left its benchmark reference rate steady at 1.50 percent, as expected, but cautioned that the growing risks of a “stronger economic slowdown in emerging economies and the declining commodity prices have raised the uncertainty about the pact of inflation returning to the target.”
     But the National Bank of Poland (NBP) still expects prices to slowly rise in the coming quarters, supported by stable economic growth amidst a recovery in the euro area and improving jobs.
    Polish consumer prices fell by 0.7 percent in July, up from 0.8 percent in June, and the NBP noted that deflation was gradually diminishing but there were no inflationary pressures due to moderate demand and a continuing negative output gap.
    Last month the central bank cut its 2015 inflation forecast to minus 1.1 percent to minus 0.4 percent, well below the bank’s target of 2.5 percent, plus/minus 2 percentage points.
    Poland’s Gross Domestic Product was slightly weaker in the second quarter with annual growth of 3.3 percent, down from 3.6 percent in the first quarter, with growth still mainly driven by consumption and growing household lending.
    “July data on production and retail sales point to a stabilization of economic growth in the following quarters,” the NBP said.
    In its latest forecast, the central bank raised its 2015 growth forecast to 3.0 to 4.3 percent.

    The National Bank of Poland issued the following statement:

  “Growth of global economic activity remains moderate. In the euro area, economic recovery continues, despite slight weakening of GDP growth in 2015 Q2. In the United States, output growth has picked up. In turn, economic growth in China 2015 Q2 remained low as for this country and incoming data indicate that economic conditions might deteriorate further. Along with deepening recession in Russia and Brazil, this caused the increased concerns about the growth outlook of the developing countries.


 The rising risk of a stronger slowdown in emerging economies led to deterioration in the financial market sentiment and – in effect – to a drop of prices of many assets. In addition, prices of most commodities, including oil, have fallen again in the global markets.
Amidst moderate global economic activity and low commodity prices, price growth in many countries remains very low. In the United States and the euro area, inflation is still close to zero, while in some European economies prices continue to decline.

Major central banks keep interest rates at close to zero, but the Federal Reserve is signalling a possibility of their increase this year. At the same time, the ECB continues its asset purchase programme. The People’s Bank of China has devalued the yuan, what was conducive to weakening of some emerging markets’ currencies.

In Poland, GDP growth in 2015 Q2 was slightly weaker than in the previous quarter. Economic growth continued to be driven primarily by consumption, supported by favourable labour market situation and growing household lending. GDP growth was also driven by further growth in investment – although weaker than in 2015 Q1 – fuelled by good financial condition of enterprises. In turn, contribution of net exports to GDP growth declined markedly. July data on production and retail sales point to a stabilisation of economic growth in the following quarters.

Due to moderate growth in demand and the continuing negative output gap, there is no inflationary pressure in the economy. Moreover, low commodity prices and moderate nominal wage growth limit the risk of rising cost pressure. As a result, the annual consumer price growth remains negative, although the scale of the deflation is gradually diminishing. Producer price growth is also negative and inflation expectations are running low.
In the opinion of the Council, price growth will continue to slowly increase in the nearest quarters. Its growth will be supported by the expected stable economic growth, amidst the recovery in the euro area and a favourable situation in the domestic labour market. At the same time, increasing risk of stronger economic slowdown in emerging economies and the declining commodity prices have raised the uncertainty about the pace of inflation returning to the target.

The Council decided to keep the NBP interest rates unchanged.”

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