MPC says closing demand gap may yet lift prices, but risks to inflation outlook rise

Poland’s Monetary Policy Council justified its October rate hold on faith that a closing demand gap will push inflation readings slowly upwards in coming quarters, but admitted that stumbling EM growth, low commodity prices and falling inflation abroad create doubts for the inflation outlook, the council said in its October policy statement.

The council offered no indication of having debated interest rates or other policy measures.

The collegiate outlook on inflation is a near cut and paste of prior rhetoric. Hopes for higher inflation readings in the coming quarters are now pinned on an “expected closing of the demand gap” versus September reference to “expected stable economic growth.”

For now, “inflation pressure is absent from the economy” on account of “moderate” growth in demand and a still negative demand gap, the council writes.

On the growth side, recent weaker-than-expected readings for selected macro data are considered to be likely temporary and Poland continues to enjoy stable economic growth, the MPC said.

This growth is maintained chiefly by domestic demand and supported by favorable labor market developments, good consumer sentiment, improving situation of enterprises, as well as stable lending growth, the council wrote.

Speaking of global developments, the MPC highlighted the elevated volatility on financial markets caused by concerns over economic growth in developing countries and uncertainties regarding monetary policy decisions of major central banks, the statement reads.

Poland’s Monetary Policy Council held rates for the seventh straight month in October, leaving Poland with it’s all time-low reference rate of 1.5%.

gty/ ami

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