Poland's inflation eased by more than expected in July as prices for food, fuel and clothing fell, raising pressure on the central bank to consider interest rate cuts sooner than in 2013. Statistics office data showed consumer inflation CPI eased to 4.0 percent year-on-year in July from 4.3 percent the previous month. Analysts had forecast price growth would slow to 4.2 percent.
The Polish zloty and bonds largely shrugged off the data, with two-year bonds, the most vulnerable to monetary policy, just a touch weaker following the release. Dealers and analysts said the lower figure, although theoretically supportive of lower interest rates in the future, may not be enough to persuade a majority of the ten-strong Monetary Policy Council (MPC) to cut rates any time soon.
"The downward trend is an argument for thinking about interest rate cuts," said Piotr Kalisz, chief economist at Citibank Handlowy. "But taking into account the fact that inflation remains high, if there is a rate cut, it will not take place in September, but at the end of the year." Most analysts expect the MPC to start cutting rates to help the weakening economy in the first quarter of next year.
But many say the economy is deteriorating fast, and that the release of second-quarter gross domestic product data later this month should offer more clues as to the rate picture. The central bank predicts the economy will slow to 2.1 percent in 2013 after growing an impressive 4.3 percent last year, but Governor Marek Belka has already expressed concern about the country's growth prospects despite high inflation.
Price growth has been above the central bank's target of 2.5 percent level for most of the last five years despite a tight policy stance that even prompted a surprise rate hike in May. "The most important fact is that inflation is still at 4.0 percent, which should keep the MPC from moving into dovish rhetoric," said Marta Petka-Zagajewska, economist at Raiffeisen Bank.