MNI EM NBP WATCH: Interest Rates Held For Sixth Time In Row

The National Bank of Poland kept key interest rates unchanged Thursday, leaving the reference rate at 5.75% for the sixth consecutive meeting. (See MNI EM NBP WATCH: Rates Likely On Hold Despite Below-Target CPI)

“The Council judges that the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term. Further decisions of the Council will depend on incoming information regarding prospects for inflation and economic activity,” it said in a press release, adding that “NBP may intervene in the foreign exchange market.”

The slowdown in CPI inflation from 2.8% in February to 1.9% in March was driven mainly by weaker growth in the cost of food and non-alcoholic beverages, the NBP said, though energy prices increased slightly on an annual basis. Economic activity grew in early 2024, with “markedly positive” data for retail sales and industrial production, while the labour market remains tight, but economic conditions in neighbouring countries - especially Germany - remain weak, it said.

“In the Council’s assessment, incoming data indicate that despite the observed economic recovery, demand and cost pressures in the Polish economy remain low, which amidst weakened economic conditions and falling inflation pressure abroad supports lower domestic inflation,” the Bank said.

Core inflation again decreased “significantly” last month, but is expected to remain above CPI inflation, the NBP said,

“As a result, it is expected that in the coming months annual CPI growth will run at the level consistent with the NBP inflation target, however, restoring higher VAT on food products will act toward the rise in inflation. This will be accompanied by the gradual decline in core inflation, although core inflation will stay above CPI inflation.”