Narodowy Bank Polski

Information on the meeting of the Monetary Policy Council on August 27-28, 2002


The Monetary Policy Council held its meeting on August 27-28, 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, money supply, lending and interest rates, in public finance sector, and the formation of inflation expectations, prices and the inflation outlook.

Decision of the Monetary Policy Council

In August, the enhancement of a low inflation level was observed. As compared to the situation observed a month before, factors that reduce inflation growth in future have strengthened:
  • the expected level of inflation has been subject to a further reduction;
  • all core inflation measures lowered;
  • the dynamics of money supply M3 dropped to the level of 1.2%;
  • the dynamics of lending to households lowered significantly, a low dynamics of lending to businesses is maintained;
  • a moderate growth of wages does not threaten in a form of a growth of inflation pressure;
  • a limitation of labor market stiffening - thanks to a partial liberalization of the labor code - will support the maintaining of inflation at a low level;
  • the outlook of an accelerated growth in the USA and the European Union got more distant.

With less optimistic growth outlook for the world economy, in Poland, the signals of the economic boom got confirmed:
  • the output in industrial processing grew in July by 7.8%;
  • budget revenues from indirect taxes have been bigger than expected;
  • export revenues have increased again;
  • a material growth has been noted in newly begun investments;
  • retail sales in current prices grew in July by 8.6%.

A moderate pace of the economic boom, in the Council´s opinion, does not pose a threat to the accomplishment of the inflation target at the moment.

Factors that could threaten the stabilization of inflation at a low level are still observed:
  • a drop of the annualized dynamics of household deposits takes place while at the same time a high dynamics of cash in circulation is maintained;
  • an outlook of a high public finance sector deficit within the conditions of the planned economic growth in 2003, together with the forecasted increase of the scale of extended guarantees and allowances, means a further loosening of fiscal policy; so far there is no substantial proposals of reforms in the system of public expenses that would enable a sustained and effective reduction of a present high level of budget deficit;
  • there is still maintained uncertainty related to the supply driven factors, especially fuel prices.

Considering these arguments, the Monetary Policy Council decided to:
  • cut the minimum yield on 28-day open market operations from 8.5% to 8.0%;
  • cut the rediscount rate from 10.0% to 9.0%;
  • cut the lombard rate from 11.5% to 10.5%;
  • maintain the deposit rate at the unchanged level (5.5%);
  • maintain its neutral position in monetary policy.

The next meeting of the Monetary Policy Council will be held on September 24-25, 2002.

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