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Poland Central Bank Holds Record Low Rate Unchanged For Second Session

Poland's central bank left its key interest rate unchanged at a record low for a second session in a row in July.

The Monetary Policy Council on Tuesday decided to hold the key reference rate steady at a record low 0.10 percent. That was in line with economists' expectations.

The previous change in the rate was a 40 basis points cut in May.

The central bank has cut the rate by a cumulative 140 points in three policy sessions since mid-March this year after the outbreak of the coronavirus, or Covid-19, pandemic.

The central bank said it will continue to purchase government securities and government-guaranteed debt securities on the secondary market as part of the structural open market operations. The timing and scale of the operations will depend on the market conditions, the bank added.

The NBP will offer bill discount credit aimed at refinancing loans granted to enterprises by banks.

The bank's July projections showed that there is a 50-percent probability that the annual inflation will be in the range of 2.9-3.6 percent this year versus 3.1-4.2 percent in the March 2020 projection.

Inflation is seen around 0.3-2.2 percent in 2021 versus 1.7-3.6 percent predicted in March and 0.6-2.9 percent in 2022 compared to 1.3-3.4 percent forecast in March.

The annual GDP growth will be with a 50-percent probability in the range of -7.2 - -4.2 percent in 2020 against 2.5-3.9 percent in the March 2020 projection, 2.1-6.6 percent in 2021 versus 2.1-3.9 percent seen earlier and 1.9-6.0 percent in 2022 compared to 1.8-3.7 percent forecast in March.

"The scale of the expected recovery in activity may be limited by uncertainty about the effects of the pandemic, lower incomes and weaker sentiment of economic agents than in previous years," the NBP said.

"The pace of the economic recovery could also be limited by the lack of visible zloty exchange rate adjustment to the global pandemic-driven shock and to the monetary policy easing introduced by NBP."

Raising interest rates in the second half of this year or even next year would be too risky, Eryk Lon, a member of the Monetary Policy Committee of the National Bank of Poland, said in an article last week.

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