MNI NBP WATCH: Rates Held, Signal Of Possible FX Intervention

The National Bank of Poland kept key rates unchanged on Thursday, with inflation on course to meet its medium-term target, albeit with the threat of “significant” increases in upward price pressures in the second half of the year if fuel prices are raised. (See MNI WATCH: NBP To Hold Rates Before July Inflation Projections)

The reference rate remained at 5.75% for the seventh meeting in a row, despite inflation rising from 2.0% in March to 2.4% in April, an increase the NBP attributed to the restoration of higher VAT on food and non-alcoholic beverages and higher fuel prices.

Further deep falls in annual producer prices last month indicate that the effect of most external supply shocks continues to fade, the bank said in a statement, while despite signs of economic recovery Poland’s growth outlook remains weak, resulting in low cost pressures.

Core inflation will stay above CPI inflation in the second half of the year due to “elevated” service price growth, while demand will be supported by marked wage growth in both the public and private sectors, the NBP said.

The appreciation of the zloty exchange rate, which the NBP said was consistent with the fundamentals of the Polish economy, is expected to further support disinflation, though the NBP said it “may” intervene in the foreign exchange market.