Polish central bank to hold key rates steady

The National Bank of Poland is likely to keep its key interest rate on hold at 1.5% tomorrow, while the updated inflation report is not expected to show any change to the current monetary policy. The central bank's report is expected to contain notable alterations to the CPI forecasts. Previous forecasts had suggested the end of deflation in Q4 2015.

However, deflation is expected to continue until Q3 2016, mainly because of external environment. The NBP is likely to project and extension of the deflationary period in it s report. This will probably be neutral for monetary policy. However, the Council might show concern regarding the probability of the long phase of deflation.

Meanwhile, in the March meeting only two 'old members' will take part. It will be a first chance for the rest of the members to decide on interest rate levels based on the recent GDP and inflation forecasts. Recent comments of the new members imply that there will be no change in monetary policy.

"We keep our forecast for the key interest rate to remain steady at 1.5% in 2016", says Societe Generale.

The MPC might consider cutting the required reserve rate after the new bank tax regime was introduced at the end of February. For such a move the timing is uncertain, but it might take place in March.