Poland’s Monetary Policy Council (MPC) held rates at 1.5% as expected at its meeting on July 5-6, and shrugged off the effects of the UK referendum to leave the EU.
As has been the case in recent months, rate setters – who met for the first time under leadership of the new governor of the National Bank of Poland (NBP), Adam Glapinski, maintained their stance that there is little pressure for a return to easing. The MPC was apparently largely unmoved either by the weak first quarter economic growth reported since the last meeting or by Brexit.
The MPC did note the new inflation report - prepared by the central bank's Economic Institute (IE) - which has dropped its outlook for 2016 to 3.2%. Yet the post- meeting press conference provided little evidence that policymakers are anywhere close to changing their stance that as long as deflation does not weaken economic growth, the current benchmark is sufficient.
Glapinski said he does not quite agree with the new forecast, suggesting growth will finish 2016 at 3.6%. The NBP head claimed he is convinced growth will pick up on the back of rising wages, good consumer sentiment, and the positive financial situation of Polish companies.
While the report stated that Brexit was taken into account in dropping the GDP forecast, Glapinski stated that there has been no impact so far from the shock out of the UK, and that he expects little, if any, in future.
Not all analysts agree with that take. "Brexit may cause growth to be a little weaker than the council expects," writes William Jackson at Capital Economics, "opening room for modest policy easing. We have pencilled in one 25bp rate cut, to 1.25%, this year."
The inflation report also indicated deflation will remain in place across 2016, ending the year at an average of 0.3-0.9%, a slight deterioration from the last report. There is little the monetary policy can do about deflation, the MPC has said, repeating its position from many previous months. That is because price falls are driven by external factors, falling commodity prices in the first place.
The concluding line of the MPC’s statement was an exact copy of the previous release, saying “the council maintains its assessment that ... the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path." That appears to confirm that the new governor is unlikely to push for any significant changes in the MPC's approach.
The July 5-6 meeting of the council was the first one chaired by Glapinski, who replaced Marek Belka. All other members of the MPC have been replaced by PiS this year, but analysts have been surprised somewhat by their opposition to further rate cuts. That is despite Glapinski's strong ties to the ruling Law and Justice (PiS) party, of which he was a co-founder.
"In our opinion, monetary policy will not change much after Glapinski has taken over," agrees Bank Millennium. "He is very well rooted in the central bank and he does not see the need to change the way it works. We expect rates to remain unchanged in nearest future."
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