Poland’s Monetary Policy Council held rates in November on faith that inflation will slowly rise and that Poland’s ongoing deflation and output gap are based in external factors outside the reach of monetary policy, minutes to the November sitting show.
The majority view says “price growth would rise slowly,” deflation is mostly from foreign factors like low commodity prices and low price growth abroad and that “the source of the negative output gap would continue to be external, and therefore it would remain beyond the influence of domestic monetary policy.”
Council members differ, however, on how that output gap might develop. An unspecified minority is listed as saying that domestic growth can further close the gap, another that strong investment growth might keep potential growth in the lead.
A dovish minority continued to suggest that rate cuts could be justified in the not-too distant future given the persistence of deflation and the risks to economic growth.
A hawkish minority that had mused about the eventual need for rate hikes went mute for the rate policy debate portion of the November sitting, minutes show.
Uncertainty over the shape of economic and fiscal policy under a new government is considered a risk factor and impediment top building a strong policy mix, the minutes show.
That political uncertainty “should be taken into account in monetary policy decisions in order to ensure an optimal macroeconomic policy-mix.”
Uncertainty is also seen in foreign growth rates and core market central bank policy, a source of FX market volatility and reason to consider local rate stability a value in and of itself, minutes show of the majority opinion.
Poland’s Monetary Policy Council left rates unchanged for the eighth straight month and heads into the last several months for the current line-up in lock step with the policy vow it issued back in March for stable rates to end-term.