Poland's interest-rate setting body, the Monetary Policy Council (RPP), slashed the National Bank of Poland's reference rate by an unexpected 50 basis points on Wednesday, bringing it to an historic low of 3.25 percent.
The cut is the fifth in the row for the council, which previously had cut 25 basis points each month from November through February.
Most analysts had expected a cut, but not such a steep one. Out of 26 economists surveyed by press agency PAP, 19 had expected a 25-bp cut, while seven had expected the RPP to hold rates unchanged.
Recent macroeconomic figures coming out of Poland had sent mixed signals. The unemployment rate jumped in January to 14.2 percent, but retail sales positively surprised with a 3.1 percent rise, after a -2.5 percent drop in December. The manufacturing sector seems to be slowly improving, while GDP was shown to have grown by a higher-than-expected 1.1 percent in the fourth quarter of last year.
But in previous months the data had been decidedly negative. The more positive data recently had led Marek Belka, president of the National Bank of Poland and chairman of the RPP, to opine last week that the Polish economy had reached the “bottom” of its current slowdown and was “rebounding.”
That, along with statements from Mr Belka earlier in the month that the council's rate-cutting period was “coming to an end,” led some to think that the RPP would pause with its cuts.
Instead, the council seemed to double down. The reference rate – which is used by banks and others to set interest rates in everything from mortgages to consumer loans to interbank loans – is now lower than it was during the darkest days of the economic crisis.
Economists point out that inflation – the main factor that the RPP is supposed to take into account when making its decision – has been falling rapidly, from 3.8 percent in September last year to 1.7 percent in January this year. The council's target inflation rate is 2.5 percent, with a band of flexibility of plus or minus 1 percent.
Przemysław Kwiecień, chief economist at X-Trade Brokers, said that the decision would “help the Polish economy.”
“On the one hand this could mean that more cuts are on the cards,” he wrote in an e-mailed statement. “But we wouldn't be surprised with the interpretation that the council has made a strong reduction in order to have a quick impact on the economy, and will now wait with its next move.”
“Going forward, we think that more rate cuts have to be penciled in,” said economists at Danske Bank in an e-mailed analysis. They called the cut “the right move.”
Piotr Kalisz, chief economist at Citi Handlowy, said that he thought the RPP was now finished with its cutting cycle.
"We suppose that with today’s rate cut the [RPP] has ended its easing cycle and will signal a de-facto neutral bias," he said.
The złoty almost immediately began weakening on the news of the cut. At 4 pm on Wednesday, it was at zł.4.14254 to the euro, a 0.23 percent rise from where it started the day.
Andrew Kureth, Kamila Wajszczuk
From Warsaw Business Journal
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