Poland: Central Bank cuts rates aggressively in September
At its 5–6 September meeting, the National Bank of Poland (NBP) cut the key reference rate to 6.00% from 6.75%, surprising markets on the downside. The NBP also cut all of its other rates by 75 basis points, taking the Lombard rate to 6.50%, the discount rate to 6.10%, the rediscount rate to 6.05% and the deposit rate to 5.50%.
The NBP decided to ease its monetary policy stance due to declining inflation and weak economic activity. On the price front, lower commodity prices, easing supply chain disruptions, weaker domestic activity and previous interest rate increases continued to support a disinflationary trend: Inflation fell to 10.1% in August (July: 10.8%). Moreover, producer price inflation was negative in year-on-year terms in July, which, coupled with falling inflation expectations, should lead to a further decline in inflation ahead. Meanwhile, the NBP stressed that economic conditions had deteriorated both globally and domestically, which has translated into softer demand pressures on prices.
In its communiqué, the NBP reiterated its commitment to take upcoming decisions on the basis of incoming data on inflation and economic activity, while remaining ready to “take all necessary actions in order to ensure macroeconomic and financial stability,” including intervention in the foreign exchange market. Our panelists were surprised by the magnitude of the rate cut and are reassessing their forecasts.
The next monetary policy decision will be taken on 3–4 October.
Rafal Benecki, Poland chief economist at ING, provides the following assessment of the NBP’s decision:
“A further decline in inflation toward the NBP target in the medium term is not clear in our view. The labour market remains tight, resulting in upward pressure on wages. Fiscal policy also remains expansionary. In this context, we perceive the Council’s decision as risky from the point of view of restoring price stability in the medium term.”