Poland's Monetary Policy Council (MPC) left the benchmark interest rate on hold at 1.5% on April 6, and largely repeated its previous statements that current interest rates are supportive of economic growth while deflaton is driven by external factors and therefore largely outside the influence of monetary policy. The comments did much to convince the market that there is little chance of a cut in the coming months.
 
The decision to hold rates at the same level at which they have stood since March 2015 was in line with market expectations, although expectations that easing could come reasonably soon had been rising somewhat. During a press conference after the decision was announced, the Governor of the National Bank of Poland (NBP), Marek Belka, said easing is no closer than it was previously. 

He also said it was good for the rate setters to maintain room for a larger cut, should the economic situation take a sudden turn for the worse. That, however, appears unlikely at the moment.

Polish growth is stable, according to the MPC, even if the GDP growth dynamics in the first quarter might be a bit less impressive compared to the 3.9% expansion in the final quarter of 2015. The economy continues undeterred by deflation, which is driven overwhelmingly by low global commodity prices.

According to the MPC, this context will persist for the medium term. However, the forecast that deflation is set to last was already made clear earlier this year. Polish CPI has now been in decline since mid-2014. The index came in at -0.9% y/y on average in 2015 and fell at the same rate in March. 

The central bank now forecasts consumer inflation will fall between -0.9% and 0.2% this year, a major change from the previous forecast of 0.4%-1.8%. At the same time, the NBP also expects GDP growth to come in at 3%-4.5% in 2016, an upward revision from the previous prediction of 2.3%-4.3%.

Analysts appear largely convinced the MPC – its line-up completely changed since last year, except for Belka who steps down in July – is not likely to execute any cut in the coming months. Apart from keeping “ammunition” in case there is a sudden economic downturn, the MPC also said cutting rates further would hurt banks, already struggling on the back of low interest rates.

“We do not change our expectations and think interest rates will remain unchanged in the coming months,” Bank Millennium writes.

Others, who refused in recent months to rule out a cut, have softened their tone as well on the back of the comments. Erste admits that while there is room for a cut, “[it is] unlikely that the MPC will change its bias in the coming months unless the growth outlook is threatened as it seems that the MPC has become sensitive to growth dynamics not the inflation rate development.”