The Council decided in early May to keep the NBP interest rates unchanged: the reference rate remains at 1.50 per cent., The lombard rate at 2.50 per cent., The deposit rate at 0.50 per cent., The rediscount rate to 1.75 percent.
What affects persistent deflation
published on Friday by the NBP document states that members of the NBP pointed out that the persistence of deflation is largely related to the earlier strong decline in prices of raw materials on world markets at low prices growth in the environment of the Polish economy and the continued negative domestic output gap.
It was also emphasized that low energy prices as a consequence of an earlier fall in commodity prices, contributing to a reduction in the prices of other goods and services, which in turn translates into negative dynamics of core inflation.
Deflation does not influence the decisions of entrepreneurs
“The members of the Council assessed that while deflation persists in the Polish economy for a long time, that it has no negative impact so far the decisions of economic agents. in particular, the available data do not indicate deposition during purchases by households or a reduction in investment by businesses due to the low growth in prices “- written.
In the long term, deflation may reduce the profitability of firms
Some Council members, however, expressed the opinion that the observed current investment growth is relatively low, taking into account high capacity utilization and prospects for further improvement of economic situation in Poland, which may suggest the negative impact of deflation on the expected profitability of companies.
According to the MPC members deflation to continue in the coming quarters, what will contribute mainly still negative annual growth in energy prices. “However, with the expiration of the impact of this factor, and expected to maintain stable economic growth and the improving situation on the labor market dynamics of consumer prices should gradually rise,” – added.
Some members of the MPC sees the possibility of weakening economic growth
Some Council members argued that the risk factor for the dynamics of consumer prices is the lack of acceleration in wage growth, despite falling unemployment. Part pointed instead to the possibility of a deterioration of the economic situation abroad, which could adversely affect national economic growth, and thus on the demand pressure. According to some members of the Council can not be excluded a significant increase in the prices of raw materials on world markets in the coming quarters, which could lead to a marked increase in inflation in Poland, even while lowering the dynamics of economic activity.
GDP will return to growth, but small
members of the Council assessed that the slowdown in economic growth at the beginning of this year. It was probably temporary. “In the coming quarters, GDP growth should accelerate slightly, although – as emphasized some Council members – the possibility of strong GDP growth is limited by the moderate growth in economic activity abroad,” – explained.
GDP growth mainly due to consumption and to benefits for families
main growth driver of GDP growth in Poland in subsequent quarters should be rising consumption growth, supported by continued recovery in the labor market , a further improvement in household sentiment, stable growth of consumer credit and increasing the educational benefits associated with the launch of the program “500+ Family.”
In addition, GDP growth is likely to be well supported by rising business investment, which promotes good financial standing of companies, high utilization of production capacity and increase investment loans.
It was pointed out, however, that the factor of uncertainty for investment growth rate is the rate of spending of the new EU financial perspective.
Members of the Council reiterated its assessment that stabilization of interest rates is conducive to maintaining the Polish economy on the path of sustainable growth and to preserve macroeconomic stability.
Some members of the MPC does not preclude the reduction in interest rates
“Some members of the Council did not rule out the possibility of lower interest rates in the event of significant weakening of economic growth in the country, deepening deflation, or the appearance of signals indicating that it has a negative impact on the behavior of economic agents” – written.
Some of the MPC members believe that a reduction in interest rates would be a positive stimulus to economic growth in Poland, including the increase in capital expenditure. While others were of the opinion that, given the heightened uncertainty translate to lower interest rates on the dynamics of investment expenditure may be limited.
PAP, jk
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