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Polish rate setters are close to extending a pledge to leave interest rates at their current record low rate of 2.5% past the end of the year, central bank governor Marek Belka said on October 22. The reiterated dovish tone comes despite retail and employment data showing continued recovery, with the monetary policy council wary of rocking the boat whilst inflation still offers them space.

"Recent data bring us closer to extending the period during which our policy bias is neutral. I don't know when we'll take that decision and for how long," Belka said after his speech in Warsaw, according to Bloomberg. "There's no doubt the recovery is under way, but it's a slow one and it's not creating inflation pressure."

The governor of the National Bank of Poland was joined by colleagues in confirming that the MPC will likely refrain for some time from returning to its previous hawkish stance while inflation allows. The only central bank in Europe to raise the cost of borrowing last year, rate setters were heavily criticized by both officials and analysts as the economy slid towards stagnation in the second half of 2012. After holding out for months, policymakers finally launched an easing cycle in November, dropping borrowing costs by 2.25 percentage points between November and July.

The NBP should leave its "neutral stance" for "one or two" quarters next year, rate-setter Anna Zielinska-Glebocka told Bloomberg. Meanwhile, Elzbieta Chojna-Duch, perhaps the most dovish member of the board, said she could even file a motion to cut rates once more, depending on the medium-term inflation outlook, which is due to be presented in November. "Maybe not at the next sitting, but at one of the following ones I could put forward such a motion," Chojna-Duch told a TV interview, according to Dow Jones.

Belka said earlier this month that rates would remain unchanged at least until the end of the year, as Poland recovers "very gradually" from its worst slowdown in a decade. However, the market has been betting that the recovery will remain subdued enough to keep interest rates on hold for longer, and predicts some tightening is likely in the second half of 2014. The key to that is inflation, which the MPC tends to prioritize. Price increases slowed to 1% year on year in September, well below the NBP target of 2.5%.

More proof of the steady but slow recovery came the same day that Belka spoke, with retail and unemployment data. The swift collapse of domestic demand last year - previously the key to Poland's relative outperformance amongst Central European peers hugely reliant on exports to the Eurozone - was behind the rapid decline in the economy.

While retail sales growth of 3.9% year on year in September showed continued improvement of consumer confidence, it was well below market expectations of 4.7%. Meanwhile, recent strong recovery in employment slowed, with the jobless rate remaining flat at 13%.

Analysts at Erste say they are upbeat on the recovery, but reiterate that the MPC is unlikely to move for some time. "Economic activity has increased, which has been visible in the positive readings not only of retail sales, but also of industrial output," they note. "However, inflationary pressure remains low and there is no reason for the MPC to change its neutral bias. Although the official statement assumes the policy rate remaining flat 'only' until the end of the year, we believe that this period will be much longer (at least until mid-2014)."

Commerzbank also expects the NBP to continue its dovish tone. However, the analysts point out: "In all this noise, the firm undertone of the data went unnoticed. This headline reading (and especially the real terms increase) would have been stronger than all expectations just two quarters ago."