Poland holds reference rate at 1½%; inflation to remain ‘moderate’

By Marisa Wong

Morgantown, W.Va., May 17 – National Bank of Poland’s Monetary Policy Council decided to maintain the reference rate at 1½% at its meeting held Tuesday and Wednesday.

The council said that the current level of interest rates will help keep the Polish economy on a sustainable growth path and maintain macroeconomic balance.

The bank pointed out that global economic conditions are showing more signs of improvement, particularly in industry and international trade. In the euro area, there is evidence of ongoing recovery; in the United States, GDP growth declined in the first quarter, likely due to temporary factors; in China, economic growth was higher than in the previous quarter, but there is no data to support a sustained acceleration in growth.

In many countries the annual inflation rates are significantly higher than in 2016, primarily reflecting an earlier increase in commodity prices, the bank noted. However, energy commodity prices, oil mostly, have fallen recently, the bank added.

The European Central Bank keeps interest rates close to zero, including the deposit rate below zero, and continues its asset purchase program. Meanwhile, the Federal Reserve is indicating further monetary policy tightening, the council noted.

In Poland, incoming data point to a pick-up in GDP growth in the first quarter, the bank highlighted.

Growth in economic activity continues to be driven mainly by increasing consumer demand, supported by a rise in employment and wages, good consumer sentiment and disbursement of benefits. “This is accompanied by improving conditions in industry and construction, which may point to a gradual recovery in investment demand,” the council explained.

Annual growth in prices of consumer goods and services, after a significant increase at the beginning of the year, has stabilized at a moderate level, the bank said. Meanwhile, core inflation, though gradually increasing, remains low, which points to continuing limited demand pressure. Despite growing employment and wages, growth in unit labor costs is still moderate, the bank said.

The council said it believes inflation will remain moderate over the coming quarters “amid fading effects of the past increase in global commodity prices, with only a gradual rise in domestic inflationary pressure stemming from improving domestic economic conditions. In consequence, the risk of inflation running persistently above the target in the medium term is limited,” the council said.

The council also kept the Lombard rate at 2½%, the deposit rate at ½% and the rediscount rate at 1¾%.

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