National Bank of Poland votes to decrease interest rates by 25 bps

By Tali David

Minneapolis, Jan. 9 - The National Bank of Poland's Monetary Policy Council decided to decrease its interest rates by 25 basis points at a meeting held on Tuesday and Wednesday, according to an announcement from the bank.

The reference rate was cut to 4% from 4¼%, the Lombard rate to 5½% from 5¾%, the deposit rate to 2½% from 2¾% and the rediscount rate to 4¼% from 4½%.

The council said that incoming data show that global economic activity was still weak in the fourth quarter of 2012. Economic activity in the United States stayed moderate, while the euro area most probably remained in recession.

In Poland, incoming data and the economic sentiment indexes show that the economic activity remained weak over the recent months. In particular, industrial and construction output decreased in November, whereas the annual growth of retail sales in real terms continued to run only slightly above zero.

Furthermore, labor market figures confirm an economic slowdown. November saw a continued decline in the corporate sector employment accompanied by a persistently slow growth in wages and unemployment rate continuing to rise.

Over the recent months, the council found that both household and corporate lending growth continued to weaken.

The bank said that consumer price inflation decreased to 2.8% in November, being close to the bank's inflation target of 2½%. At the same time, both the core inflation measures and producer price growth continued to decline, which confirms weakening of demand and cost pressures. Declining inflation was accompanied by lower inflation expectations of households.

In the opinion of the council, incoming data confirm a considerable economic slowdown in Poland, which results in limited wage and inflationary pressures.

At the same time, the council assessed that GDP growth will remain moderate in the coming quarters, which poses a risk of inflation running below the bank's inflation target in the medium term.

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