9/28/2006

Poland: NBP on hold but rate hike draws closer

Danske Bank A/S
http://www.danskebank.com/

Wed, 27 Sep 2006 15:34:51 GMT

The Polish central bank’s (NBP) Monetary Policy Council today 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.

While the Polish central bank has kept rates unchanged, the next move will definitely be upwards rather than downwards. Firstly because, although inflation in the Polish economy has been running below one percent for most of this year, it has accelerated during the past couple of months, reaching 1.6% y/y in August, and the upward trend seems likely to continue. Secondly, GDP growth is now running at more than 5%, and hence might well put additional pressure on inflation. Thirdly, political scandals have recently been hitting the region, first Hungary then, yesterday, revelations involving Lipinski, a top aide to the Polish prime minister. The political situation in the region is generally turning rather sour. Finally, many central banks in the region turned more hawkish this week, delivering surprise rate hikes in Slovakia (25bp), Hungary (50bp), and the Czech Republic (25bp). The Polish central bank will, of course, now be pushed to follow the track of the other central banks in the region.

Therefore, we 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.


Source: By Stanislava Pravdova, Lars Christensen, www.fxstreet.com



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