Poland: Central Bank stands pat in January
The National Bank of Poland (NBP) kept the reference rate unchanged at a record low of 1.50% at its 7–8 January monetary policy meeting, as had been widely expected. In addition, the Central Bank held the Lombard rate stable at 2.50%, the deposit rate at 0.50% and the rediscount rate at 1.75%. The Bank has stood pat since ending its easing cycle in March 2015.
Moderate core inflation, softening but still-solid growth and the ultra-loose monetary policy stance of the European Central Bank supported the Bank’s decision. Headline inflation spiked to 3.4% in December from 2.6% in November—stoked by rising food and fuel prices—landing just below above the upper bound of the Central Bank’s target range of 2.5% plus or minus 1.0 percentage point. Meanwhile, growth eased to a near three-year low in Q3, dragged on by the prolonged economic weakness in Germany’s industrial sector. Plunging business confidence throughout Q4 and weak industrial output growth in October-November point to protracted weakness in investment activity, although a tight labor market and solid wage gains should continue to fuel household spending.
Looking ahead, the Bank maintained its positive assessment of the country’s economic conditions, although a challenging external backdrop continues to pose downside risks. FocusEconomics analysts see the Bank keeping the rate broadly unchanged next year, as it attempts to balance sustained inflation with weaker external demand and the ECB’s accomodative monetary stance.
Commenting on the likely direction of monetary policy ahead, Rafal Benecki, chief economist for Poland at ING, noted:
“CPI should flirt with the upper ceiling of the NBP target (2.5%+/-1%) for the rest of 2020. In 2021, the second of a series of three 15% minimum wage hikes will occur. […] The series of minimum wage hikes increases the risk of CPI staying above target also in 2021. We think that the MPC can accept elevated CPI for an extended period.”
The next monetary policy meeting is scheduled for 4–5 February.