Poland’s MPC cut interest rates by 25bp, in line with consensus and our forecast. Today’s decision had been widely expected after the MPC reduced rates last month and indicated the start of an easing cycle rather than a one-off event. Despite calls for more radical one-off moves from rate-setters such as Andrzej Bratkowski and Elzbieta Chojna-Duch, the MPC opted for another 25bp cut rather than a 50bp reduction. As underlined in our previous notes, the majority of MPC members are of the opinion that monetary policy should avoid any sudden changes, since inflation remains elevated and such a decision could risk a nervous reaction by financial market investors. We continue to look for rate reductions totaling 100bp in this easing cycle: we expect two more 25bp cuts by end-1Q13. As inflation slows further in November, possibly to below 3%, we believe a majority within the MPC is likely to back another rate cut as early as January 2013. The MPC’s statement and conference scheduled for 4pm CET today might shed some more light on the Council’s future plans.
• The rate cut was supported by lower-than-expected GDP in 3Q12 (1.4% y/y), which confirmed that economic growth in Poland had reached its slowest pace since 2Q09. The key disappointment in the third quarter was private consumption, which slowed to its weakest pace since 1995.
• Inflation also eased in October (to 3.4%) and this trend is likely to continue in the months ahead, driving inflation down to the 2.5% target in the first months of 2013.
• The Polish zloty strengthened somewhat against the euro after the MPC decision, trading at 4.1200 at 1:00 pm CET today compared to 4.1330 at yesterday’s close. The yield on the government’s 10-year bond is flat compared to Tuesday’s closing, at 4.11%.