Poland: Another non-event - rates remain on hold

The Polish central bank’s (NBP) Monetary Policy Council today ( 08/30/06) decided in favour of unchanged interest rates, keeping the key policy rate at 4.00% - a decision completely in line with our and the market’s expectations.

Unchanged rates should be seen against the backdrop of inflation remaining low, albeit edging up to 1.1% y/y in July. However, this is still below the central bank’s inflation target of 2½% +/-1%. Such a low level of inflation might perhaps argue in favour of further rate cuts, but we are quite sure the next rate change will be up rather than down, especially considering today’s Q2 GDP figures, which showed that GDP growth accelerated further, from 5.2% y/y in Q1 to 5.5% y/y in Q2, boosted by investments, which grew by 14.4%.

While inflation is low in Poland at the moment, today’s stronger GDP growth figure definitely suggests that inflationary pressures will build going forward. We therefore believe the NBP will adopt a more hawkish tone in the weeks ahead, and it is becoming increasingly likely that the central bank will hike its rates by the end of this year.

Danske Bank
Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/
Source:www.fxstreet.com