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Poland: Unchanged, but for how long?
Wed, May 28 2008, 12:53 GMT
by Lars Christensen, Lars Rasmussen
Today the Polish central bank (NBP) kept its key policy rate unchanged at 5.75% in line with the consensus expectation and our expectation. That said, some analysts had expected a rate hike and a roughly 50% chance of a 25bp hike had been priced in the market, so to some players it most have been a disappointment that the NBP kept rates unchanged.
For the second month in a row the NBP has kept its rates unchanged after initiating the monetary policy cycle mid-2007. However, there is no doubt that the NBP remains on a tightening bias mostly because inflation remains well about the NBPs inflation target of 2.5% +/- 1%-point. However, the zloty remains strong and the first signs of a slowdown in growth are emerging and this is probably what kept the NBP on hold.
That said, it is only natural for the NBP to keep the door open for re-starting the tightening cycle in the coming months. In particular, the recent sharp rise in oil prices and its potential impact on Polish inflation make us less confident that the NBP will not hike rates once or twice more. Stagflation surely is a major challenge to all central banks in the world also the NBP.
The market reaction was fairly muted, as rates are down roughly 1bp and the currency trades are at the opening-levels from this morning EUR/PLN 3.40. We are now waiting for the press conference, which is scheduled for 16:00 CEST this afternoon. At the press conference we believe that the NBP will keep the door open for further tightening.
We will adjust our FX and interest rate forecasts on Monday, when we publish our monthly EM Briefer.
Published on Wed, May 28 2008, 12:57 GMT
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