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).

MPC left out its key sentence from the press release that last month said: The Council maintains its assessment that NBP interest rates should be kept unchanged until the end of the third quarter of 2014." Governor of the National Bank of Poland (NBP) and MPC chairman Marek Belka stressed that this move does not mean that the Council is closer to an interest rate cut at its next sitting in September - indeed, he said that the probability of such a decision is "very low," though this could change in subsequent months. He also said that one should not expect a rate hike in the next few months.

Belka explained that previously, inflation could be expected to return to target in not too distant future, while the central bank's new CPI/ GDP projection suggests that the period of low inflation will be prolonged.

The Council got acquainted with the inflation and GDP projection prepared by the Economic Institute, which is one of the inputs to the Council's decisions on interest rates. The full release of the projection is planned for Monday.

In line with the July projection based on the NECMOD model - prepared under the assumption of unchanged NBP interest rates and taking into account data available until 13 June 2014 (projection cut-off date) - there is a 50-percent probability of inflation running in the range of -0.1-0.4% in 2014 (as compared to 0.8-1.4% in the March projection), 0.5-2.1% in 2015 (as against 1.0-2.6%) and 1.3-3.1% in 2016 (as against 1.6-3.3%).

At the same time, the annual GDP growth - in line with the July projection - will be, with a 50-percent probability, in the range of 3.2-4.1% in 2014 (as compared to 2.9-4.2% in the March projection), 2.6-4.5% in 2015 (as against 2.7-4.8%) and 2.3-4.5% in 2016 (as against 2.3-4.8%).

MPC also said in its release that in the coming months inflation will remain very low (it amounted to 0.2% y/y in May) and may temporarily fall below zero. In the following quarters, the ongoing economic recovery and improvement in the labour market should support a gradual increase in inflation and its approaching the target in the projection horizon. This assessment is supported by the July projection of inflation and GDP. Nonetheless, uncertainty persists over the scale of further acceleration of economic growth and the prospects of inflation returning to the target.

Some analysts expect at least one interest rate cut this year - the first one possibly already in September - especially if the Polish economic revival is indeed halted, but the consensus is still that interest rates will remain unchanged at least till Q2 of 2015.