Narodowy Bank Polski

Information on the meeting of the Monetary Policy Council on September 24-25, 2002


The Monetary Policy Council held its meeting on September 24-25, 2002. The Council was submitted the materials prepared by the Management Board and departments of the NBP as well as information and analytical materials prepared by the Ministry of Finance, banks and research institutes. The Council discussed the external conditions of the Polish economy and tendencies in the real sector of the economy, in the area of wages and social benefits, in public finance sector, in the area of money supply, lending and interest rates, and the formation of inflation expectations, prices and the inflation outlook.

Decision of the Monetary Policy Council

In September, the enhancement of a low inflation level is observed. Factors that reduce inflation growth in future have strengthened:
  • the expected within 12 months level of inflation has been subject to further reduction,
  • the current inflation rate and all core inflation measures lowered,
  • the dynamics of money supply M3 dropped,
  • the dynamics of lending to households and businesses lowered significantly,
  • a moderate growth of wages - in conditions of a high level of unemployment - does not threaten in a form of the increased inflation pressure,
  • the growth forecasts for the world economy lowered, including, in particular, the German economy.

The signals coming from the economy are still not explicit. Positive information on the increase of the estimate value of newly begun investments can forecast a coming improvement of the investment demand. We assess that the data for August on the sold industrial output, although a little weaker than it was commonly expected, confirm that the lowering trend in production has been overcome and the increase of the added value in this sector should be expected in the 3rd quarter. These signals give the evidence that the economic growth pace will increase in the quarters to come. Whether the slow economic growth accelerates considerably and whether this acceleration is permanent will be decided by the demand driven factors and mainly the demand from abroad. The growth forecasts for abroad, however, are not optimistic. The prudence in the assessment of possibilities of the investment demand dynamics acceleration is also prompted by the higher risk of a war with Iraq.

A moderate pace of the economic boom, according to the Council, does not pose a threat to the accomplishment of the inflation target in 2002 and 2003 at the moment, however, it indicates the necessity to be prudent in making decisions on the pace and scale of the monetary policy loosening.

Factors that could threaten the stabilization of inflation at a low level and limit the growth of production potential are still observed:
  • the drop of the annualized dynamics of household deposits is getting deeper,
  • there is still maintained significant uncertainty related to fuel prices,
  • the draft Act on the State Budget for the year 2003 does not constitute the fulfillment of the Government’s earlier declarations to take measures that would permanently improve the situation in public finance. The draft lacks the basic systemic solutions that would affect the reduction of the budget expenses dynamics and change their structure. The outlook of maintaining a high deficit of the public finance sector in the conditions of a forecasted faster economic growth in 2003 means further loosening of fiscal policy.

The Monetary Policy Council acknowledged that, from the point of view of future inflation, factors reducing the inflation pressure have got - on the basis of present forecasts - a bigger impact than factors threatening the inflation stabilization and decided to:
  • cut the minimum yield on 28-day open market operations from 8.0% to 7.5%;
  • cut the rediscount rate from 9.0% to 8.5%;
  • cut the lombard rate from 10.5% to 10.0%;
  • cut the deposit rate from 5.5% to 5.0%;
  • maintain its neutral position in monetary policy.

The next meeting of the Monetary Policy Council will be held on October 3, 2002.

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