Monetary Policy Council leaves interest rates unchanged

Poland's Monetary Policy Council held a meeting on April 4-5 at which it decided to keep the NBP interest rates unchanged.

- reference rate at 6.75% on an annual basis;

- lombard rate at 7.25% on an annual basis;

- deposit rate at 6.25% on an annual basis;

- rediscount rate at 6.80% on an annual basis;

- discount rate on bills of exchange at 6.85% on an annual basis.

This is the seventh month in a row when the MPC has decided not to change interest rates.

In a statement released on Wednesday, the Council said that "despite an improvement in some of the indicators in recent months, the global economic conditions remain weakened. "In the euro area, forecasts indicate that GDP growth in 2023 will be low. At the same time, turmoil in the banking sector in the United States and Europe has increased uncertainty about global economic activity in the coming quarters," we read.

Furthermore, the MPC stressed that "amid the weakening of economic growth around the world, activity has also slowed down in Poland". "Monthly data for February 2023 indicate a fall in retail sales and industrial output in annual terms, accompanied by higher growth in construction and assembly output," the Council said.

"Despite the slowdown in activity, the labour market situation remains good and unemployment is low. The number of working persons remains high, although annual growth in employment in the enterprise sector declined."

According to a flash estimate released by Statistics Poland last week, CPI inflation in Poland declined to 16.2% y/y in March 2023 following a rise to 18.4% y/y in February.

The said that "the weakening of the external economic conditions, together with a decline in commodity prices, will continue to curb global inflation, which will contribute to lower price growth in Poland".

"The decline in domestic inflation will be supported by a weakening of GDP growth, including consumption, amid a significant decrease in credit growth. As a result, the Council assesses that the earlier strong monetary policy tightening undertaken by NBP will lead to a decline in inflation in Poland towards the NBP inflation target."

"At the same time, given the strength and persistence of the earlier shocks, which remain beyond the impact of domestic monetary policy, the return of inflation to the NBP inflation target will be gradual. The decrease in inflation would be faster if supported by an appreciation of the zloty exchange rate, which, in the Council’s assessment, would be consistent with the fundamentals of the Polish economy,"

"Further decisions of the Council will depend on incoming information regarding prospects for inflation and economic activity," the Council underscored.