Poland's main interest rate likely to be cut this week

The National Bank of Poland's interest-rate setting Monetary Policy Council (RPP) is widely expected to cut interest rates by a further 25 basis points at its meeting this week. Currently, the NBP's reference rate stands at 4.50 percent, after the council cut rates by 25 bp in November. That put interest rates back where they were before May, when the council surprised many by hiking the reference rate to 4.75 percent.

However, some economists are arguing that the council should take an even stronger stance, and cut deeper, perhaps by 50 bps, considering the sharp slowdown the economy has taken. On Friday, Poland's statistical office revealed that GDP in the third quarter only grew by 1.4 percent – down from 2.3 percent in the second quarter and 3.6 percent in the first quarter. The biggest factor in the slowdown, experts say, was a precipitous drop in private consumption, which grew by just 0.1 percent.

“We actually think that a more aggressive rate cut next week would be appropriate given the sharp slowdown of the economy,” said economists from Danske Bank in an e-mailed note.

Forecasts show that inflation should continue to fall across the next few months, yet the RPP’s general consensus seems to point to gradual rate cuts and and waiting for the turn of events.

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