Narodowy Bank Polski

Information on the meeting of the Monetary Policy Council on November 26-27, 2002


The Monetary Policy Council held its meeting on November 26-27, 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 October 2002, in the economy dominant were still the developments that supported the strengthening of a low level of inflation:
  • all core inflation measures lowered,
  • inflation expectations of both, individuals and bank analysts, have stabilized at the same low level as a month before,
  • the annualized dynamics of total money supply lowered visibly, the dynamics of cash stabilized, and the annualized dynamics of lending remains at a low level,
  • a moderate wage growth - in conditions of a high level of unemployment - does not threaten in a form of the increased inflation pressure,
  • the growth forecasts of the world economy, including, in particular, the German economy, indicate that the economic boom can be expected only in the 2nd half of 2003, and it will be much slower than forecasted a month ago.

The factors that decide on the economic growth - and indirectly on inflation tendencies - in 2003 and 2004 rather confirm the earlier data on a gradual improvement of the economic activity.
  • In the 3rd quarter this year

    • the added value in industry increased,
    • the drop of the volume of construction and assembling production decreased,
    • the data on the improvement of the financial situation of enterprises got confirmed,
    • a high sales dynamics in sections included into market services was maintained. A higher pace of the GDP growth in the 3rd quarter is a positive signal, especially at the background of the worsening economic situation in Germany.

  • In October:

    • the sold industrial output was bigger than in the same month last year by 3.2%,
    • the retail sales dynamics increased, in nominal terms it was higher by 5.1% than in the same month last year.

However, there is still uncertainty about the permanence of the boom:
  • The drop of construction output got bigger (from 6.1% to 8.8%).
  • Latest results of the economic situation research made by GUS indicate worsening of the climate in processing industry, construction, and retail sales.
  • Despite the improvement of the financial situation of enterprises, the investments expressed in fixed prices after three quarters were - like in the 1st six months this year - lower by 15.5% than in the same period of 2001 (this drop, however, was related to enterprises that hire more than 50 employees, so in this situation it does not decide on the scale of the investment drop taken into consideration in national accounts).
  • The latest forecasts shift in time again the moment of the economic boom in Germany what results in shifting the period of the accelerated growth of Polish exports into the second half of 2003.

Summing up, it should be said that the growth pace of domestic demand within the quarters to come would gradually increase. The process of integration with the EU, especially in 2004 and in the following years, will contribute to the acceleration of the investment growth.

There are still factors that can make it difficult to stabilize inflation on a low level:
  • Despite the fact that oil prices on world markets lowered in October, the uncertainty connected with the conflict concerning Iraq makes it necessary to expect their rise again.
  • In October, the third month in a row already, the deposits of households placed at banks dropped, in part as a result of the lower interest rates and the introduction of the tax on interest income.
  • Despite a very low dynamics of monetary aggregates, it is difficult to assess precisely what will be their delayed reaction to the already made decisions on the interest rate cuts that as related to 2001 are at a radically lower level.
  • There is a threat of a bigger than planned in the draft act on the state budget for the year 2003 economic deficit of the public finance sector, mainly as a result of a bigger shortage of this sector units beyond the state budget.
  • The rise of sale prices in industry in 2002 is the evidence of these prices high sensitivity to a change of the exchange rate of the zloty. Together with the improvement of the economic growth dynamics, there should be expected the increased current account deficit of the balance of payments what would depreciate the zloty. In this situation, it cannot be excluded that in the 2nd half of 2003 and in 2004 two factors that increase the inflation pressure will be cumulated: the increase of domestic demand and the drop of the exchange rate of the zloty.

That is why, although now there are no serious visible threats to the accomplishment of the inflation target in 2003, the increase of inflation pressure by the end of 2003 and in 2004 cannot be excluded.

The Monetary Policy Council acknowledged that, from the point of view of future inflation, factors reducing the inflation pressure have got a bigger impact than factors threatening the inflation stabilization and decided to:
  • cut the lombard rate from 9.0% to 8.75% annualized;
  • cut the rediscount rate from 7.75% to 7.50% annualized;
  • cut the minimum yield on 28-day open market operations to the amount 6.75% annualized;
  • cut the deposit rate (for term deposits placed by banks at the NBP) to the amount 4.75% annualized.

The Council maintains its neutral position in monetary policy.

* * *

The Monetary Policy Council has approved the financial plan of the NBP for the year 2003 and has continued its discussion on a medium-term strategy of monetary policy for the period 2004-2006. The Council has also accepted the Report on Inflation in the 3rd Quarter 2002.

The next meeting of the Monetary Policy Council will be held on December 17-18, 2002.

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NBP interest rates

Reference rate 1.50
Lombard rate 2.50
Deposit rate 0.50
Rediscount rate 1.75

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