Polish Central bank voted on interest rate cut by 50 and 25 bps in July, but failed in both cases, according to the minutes released yesterday. Although there clearly are members on the board that are afraid of weaker growth prospects and would like to see more accommodative monetary policy, they are now in minority. The growth in industrial output and retail sales in 2012 Q2 was significantly lower than in previous quarters, but this is still more or less consistent with the current level of interest rates according to the board. Only “few members” of the board assessed the current rates as being too high given the growth outlook.
If we see moderate re-acceleration in July retail sales today, that could be another evidence for the hawks on the board to remain comfortable with wait and see mode. We currently stick to our base scenario of interest rate stability till the end of the year. Although the risks are now clearly on the downside, the market seems to be too pessimistic about the Polish growth prospects. There are nearly 3 25 bps cuts priced in the FRA market in the 9 month horizon, which seems to be unrealistic.