EZA 671: Poland; Politics / Economy

31 March 2005

Poland update – central bank starts rate cut cycle amidst political uncertainty
50 bp cut in official rates (to 6.5%) – in line with market expectations – means the start of an easing cycle, which may last until next year. Since base effects and weak wage pressures imply a retreat of CPI inflation from currently 3.6% below the NBP’s central target of 2.5% from May05 onward, further rate cuts are likely to follow before the middle of this year. The rate cut cycle would be justified also by the broader economic picture, with a slowing of private consumption and GDP growth below the 4.5% government forecast. However, the economic rationale for lower rates may be blurred by political uncertainties; the chances that forthcoming elections will lead to a stable government, able to achieve consistent fiscal consolidation, have declined according to recent opinion polls. While politics might slow the easing process, markets might take easing in their hands, as seen by the combined decline of bond yields and – more recently – the zloty

SummaryPlease see attached briefing note including market conclusions.

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© Graham Bishop