MPC prolongs forward guidance on new Polish CPI/ GDP projection, Ukraine situation

By bne IntelliNews March 6, 2014

The Monetary Policy Council (MPC) has decided to keep interest rates unchanged, which is a decision in line with the expectations of all bank economists. Thus, the key reference rate is still 2.50% (after the 25bps cut in July of 2013). However, it changed the wording of its regular press release's crucial sentence to: "In the Council’s assessment NBP interest rates should be kept unchanged for a longer period of time, i.e. at least until the end of Q3 of 2014" from: "The Council maintains its assessment that NBP interest rates should be kept unchanged at least until the end of the first half of 2014."
Governor of the National Bank of Poland (NBP) and MPC chairman Marek Belka said that the decision to prolong the "forward guidance" by three months was made unanimously, though MPC also discussed the prospect of prolonging it by six months. He said that the key reasons for the decision were the new CPI/ GDP projection by NBP as well as the situation in Ukraine.
Commenting on the new projection (it is due to be published in full on Monday), Belka said that it points to a "balanced and virtually inflation-free growth." The annual GDP growth - in line with the March projection - will be, with a 50-percent probability in the range of 2.9-4.2% in 2014 (as compared to 2.0-3.9% in the November 2013 projection), 2.7-4.8% in 2015 (as against 2.1-4.5%) and 2.3-4.8% in 2016.
According to the new projection - prepared under the assumption of unchanged NBP interest rates and taking into account data available until 14 February 2014 (projection cut-off date) - there is a 50-percent probability of inflation running in the range of 0.8-1.4% in 2014 (as compared to 1.1-2.2% in the November 2013 projection), 1.0-2.6% in 2015 (as against 1.1-2.6%) and 1.6-3.3% in 2016.
Commenting on Ukraine, Belka said that this neighbour's situation prompted the Council to demonstrate its view that there are no threats for the Polish economy, at least in respect of monetary policy and its belief in the strong fundamentals of the Polish economy and the stable zloty. He also noted that even if the worst-case scenario, the situation in Ukraine may lower Poland's GDP by no more than 0.2-0.4pps, which "would not be dramatic" in the face of clearly accelerating growth in Poland.
After these statements, most bank analysts said that the first interest rate hikes in Poland may materialise no earlier than in Q1 of 2015 (vs. earlier expected Q3-4 of 2014).

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