NBP keeps interest rates on hold; lowers economic growth and inflation outlook

The National Bank of Poland’s Monetary Policy Council decided to keep the interest rates on hold on Wednesday. The reference rate was kept unchanged at 1.5 percent. The MPC in its statement mentioned that the global economic growth continues to be moderate.

Also, the uncertainty about future economic conditions in the global economy remains. According to the NBP’s MPC statement, Brexit decision has increased risk aversion in the global financial markets that was seen in a depreciation of currencies and a decline in asset prices in several countries.

Regarding the Polish economy, the central bank stated that the incoming data indicates acceleration of economic activity after the GDP decelerated in the first quarter. The MPC believes that a solid rise in the wage bill and favorable consumer confidence along with a strong financial positions of enterprises have a positive influence on domestic economic conditions.

A rise in disposable income of households is likely to contribute to the GDP growth in the quarters ahead. However, the MPC noted that uncertainty regarding economic conditions overseas, such as impacts of Brexit, is a risk factor the Polish economic activity.

On the inflation front, the MPC mentioned there are no inflationary pressures currently, given the negative output gap and moderate growth of average nominal wages.

It stated that annual consumer price growth and producer price growth continue to be negative. External factors, especially the previously severe decline in the global commodity prices and the low price growth in the Polish economic environment, remain the key drivers of deflation. Moreover, low inflation expectations also remain.

The staff of the central bank forecast the economy to return to more stable growth rates following the disappointing rate in the first quarter. The National Bank of Poland Chairman Adam Glapinski mentioned that almost all the MPC members project higher growth than anticipated by the staff. Glapinski stated that he projects the economy to grow 3.6 percent in 2016.

Moreover, the staff has revised down the inflation projection slightly.  The new forecast range midpoints are 0.6 percent this year, 1.3 percent next year and 1.5 percent in 2018. Glapinski mentioned that inflation is expected to be negative in the coming quarters because of oil prices.

Overall, the tone of the statement implies that the new MPC chair will have a tad more hawkish bias than anticipated, noted Nordea Bank in a research report. Glapinski said that the monetary policy is “conservative” and that the economy is in a perfect balance. Furthermore, he mentioned that the Monetary Policy Council will talk about rate hike timing if the Polish economy expands at a more rapid rate.