Inflation, monetary policy and interest rates

In 2013, the consumer price index (CPI) increased by an average of just 0.9% compared with 3.7% in 2012. At the end of the year, the CPI index declined to 0.7% y/y compared with 2.4% y/y in December 2012. Inflation would have been even lower, if not for the jump in the CPI index in July from 0.2% y/y to 1.1% y/y. This was mainly caused by the entry into force of the amendments to the regulations on the maintenance of cleanliness in municipalities and, as a result, a significant increase in household charges for waste disposal.

Lower inflation was fostered by both supply and demand factors. The regulated prices of natural gas were reduced at the beginning of the year, while electricity prices remained stable. Food prices rose more slowly than in 2012. Given relatively weak global economic growth, world commodity and fuel prices also supported low inflation. Simultaneously, there was no demand or pay pressure for prices to rise. Net inflation (excluding food and energy prices) declined in 2013 to an annual average of 1.2% compared with 2.2% in 2012.

In these circumstances, the Monetary Policy Council continued the cycle of reductions in the National Bank of Poland’s interest rates, which started in early 2013, by 25 basis points per month. In March, the Council made a surprising decision to increase the scale of reductions to 50 basis points, simultaneously suggesting the possible end of the cycle of easing monetary policy. However, in May, given the further decline in inflation and the lack of clear signals of an upturn in the economy, it resumed the 25-point rate cuts. Three such decisions were made at its successive meetings, after which, in July, with the reference rate reduced to 2.5%, the end of the cycle of easing monetary policy was announced. In September, the Council indicated that interest rates should remain unchanged at least until the end of 2013, while, at its November meeting, this period was extended at least until the middle of 2014. In March 2014 the Monetary Policy Council announced the prolongation of its declaration to maintain unchanged interest rates at least till Q3 2014. 

On the money market, changes in WIBOR 6M rates were closely related to changes in the NBP reference rate. WIBOR declined together with interest rate cuts. It stabilized in June 2013, even before the last reduction in rates by the Monetary Policy Council. The extent to which the WIBOR 6M rate declined in 2013 was approximately 140 basis points.