The National bank of Poland cut its 28-day intervention rate by 150 bps to 10.0. It also slashed the discount and lombard rates by 200 bps to 12.0% and 13.50% bps, respectively. As usually, the outlook for future rate movements remains ‚neutral.‘ The scale of the cut has been in line with market expectations and has not cause any major moves on the financial market. The USD/PLN stabilized at 4.1300, i.e. at the level prior to the announcement. The scope of the cut suggests that the central bank is maintaining its cautious approach to a deeper cut in rates.
The question is whether the central bank will go on cutting the rates further, or if we are heading for several months of rate stability. The market has been pricing in another cut in next 2-3 months. The central bank is currently in a very difficult situation. On the one hand there is a relatively sharp deteriora-tion of macroeconomic indicators, on the other, the previous rate cuts translated quite inadequately into a drop in the price of credits. In 2001 the interest on credits dropped from 22.90% to 21.90% for households and from 20.9% to 16.6% for com-panies, while official rates were cut by 7.5 percentage points. And also, the decline in deposit rates for households and cor-porate customers was much stronger than in the case of credits. The RPP is concerned about the low level of interest on house-hold deposits. L.Balcerowicz noted that the real interest on household deposits might fall below zero after the new interest income tax. On the other hand, the governor said that the fall in inflation had been broad-based and sustainable and that the inflation should stay at current levels around 4% this year.
We expect that at the turn of this quarter the MPC will once again reduce interest rates by 100 – 150 basis points.
At the press conference, MPC’s G.Wojtowicz commented the latest government pro growth package; he said that it means more market and cheaper labor – and that means cheaper money. It seems that if the government is able to put through a part of its package, the MPC will be more inclined to cut rates.
Konrad Sozsynski, Kredyt Bank S.A., Warsaw
Jakub Dvorak, CSOB, Prague