|The easing cycle is likely over, though NBP president Marek Belka wouldn't definitively rule out further cuts|
Courtesy of IMF
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 last 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.
|Source: National Bank of Poland|
That, along with statements from Mr Belka early in February 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 slashed rates by 0.50 percent, a surprise to nearly everyone. 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.
At a press conference after the decision, Mr Belka told the media that the council wanted to put a “full stop placed after a certain series of rate cuts” and that the council is now taking a “wait-and-see” approach. He wouldn’t go so far as to rule out further cuts, but said that the council would need “inflation and GDP data to differ significantly from what we see in the [current NBP] projection,” before any further cuts are made.
Nevertheless, some economists still expect the council to further cut rates this year. “Going forward, we think that more rate cuts have to be penciled in,” said analysts at Danske Bank in an e-mailed statement. They called the cut “the right move.”
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.”
“The 50bp interest rate cut it is certainly not a mistake by the RPP,” he told WBJ. “An economic slowdown is clearly visible, while there are no inflationary pressures. What is worse, the slowdown comes not only from declining exports, but also from falling consumption. The cut also does not hurt the złoty, which is still strong relative to other currencies.”
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