Polish central bank keeps rates on hold

Led by central bank (NBP) Governor Marek Belka the MPC kept the Lombard rate at 2.50 percent, the deposit rate at 0.50 percent and the rediscount rate at 1.75 percent.

The market had been expecting no change.

In March the council lowered rates by 50 basis points and said it was "closing the cycle of monetary policy easing" after three years.

Poland has seen price deflation for consecutive several months and the low level of interest rates does not seem to have driven up demand and prices, set against a strong weakening of the zloty on forex markets.

The move is predicated on forecasts of growth despite deflation. That has come into question as growth decelerated in the second quarter.

“We see risks of larger changes in the outlook,” Magdalena Polan, a London-based economist at Goldman Sachs Group Inc., said in a note, Bloomberg reported. “Concerns over Chinese and global growth intensified; this, in turn, reduced the optimism on the sustainability of the recovery in Europe.”

The Polish currency fell 2.3 percent versus the euro in August, while the yield on Poland’s 10-year local-currency bonds rose three basis points to 3.05 percent on Wednesday.

GDP last quarter rose 3.3 percent from a year earlier after a 3.6 percent increase in the first three months. Industrial output and retail sales also missed estimates in July and slowed on an annual basis. The purchasing managers’ index, a gauge of manufacturing, had its biggest decline last month since January 2005. The decline in consumer prices moderated in July to 0.7 percent from a year earlier after a 0.8 percent drop in June. On the brighter side, the economy has been expanding at least three percent for seven quarters, unemployment in July was at the lowest level in almost seven years and wages accelerated to a three-month high. (jh/rk)