National Bank of Poland keeps rates on hold, likely to keep rates unchanged until end-2018

The National Bank of Poland’s monetary policy committee kept its key interest rate on hold on Wednesday as expected. The MPC upwardly revised its central projection for this year’s real GDP to 4.1 percent from 3.7 percent given the solid economic developments in the first half of 2017 and expectations of higher absorption of EU funds in the second half of 2017.

The NBP also anticipates higher growth in 2018-2019 at 3.55 percent and 3.3 percent, respectively. The trajectory for inflation was lowered marginally, basically forecasting inflation just to reach the 2.5 percent target in 2019. The central bank governor stated that the key interest rate would most likely remain stable at 1.5 percent until the end of 2018 given the muted inflation outlook in the central bank’s view.

The MPC stated that the present level of interest rates is “conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic balance”. But there were signs of rising concerns in the MPC about the accommodative monetary policy stance, noted Danske Bank. The NBP appears to be too relaxed about the inflation outlook. The combination of accommodative monetary, EU investment and fiscal policies in an economy close to full employment is expected to lead to considerable labor shortages and hence upward pressure on wages and consequently core inflation.

“We see a significant chance that inflation will reach the 2.5% target already in mid-2018”, added Danske Bank.