Poland's central bank remains on hold, signals move closer to rate hike

Polish 10-member Monetary Policy Council left the seven-day reference rate at 1.5 percent Wednesday in line with expectations. Poland's central bank has held the benchmark at a record low for a 17 month. The persistent deflation has so far prompted no policy response because the European Union’s biggest eastern economy has expanded by at least 3 percent every quarter for the past two years.

Poland’s economy expanded 3.1 percent y/y in the second quarter this year. Despite remaining below forecasts, Governor Adam Glapinski said it was “good and stable” and should pick up in the first half of next year. 

Glapinski said that the central bank is “moving closer to an interest-rate increase,” he said he “hopes” that will happen in the latter stages of 2017, once the economy accelerates, deflation ends and price growth starts to approach the 2.5 percent inflation target.

“Accelerating inflation and a quite high probability that it will return near the target in a few quarters may prompt policy makers to raise rates in the second half of 2017,” said Jakub Borowski, chief economist at Credit Agricole SA in Warsaw.