Aiming low
Economists say that once achieved, Poland may be able to peg inflation at the 2.5 percent level until 2007, cementing expectations that interest rates will soon be reduced.
In its quarterly report, the central bank said that inflation, which stood at four percent in January, will near the target in the second half of this year, easing faster than previously thought, due to the strong złoty.
"We expect that over the next three years the realization of the bank's target is very probable," deputy central bank governor Krzysztof Rybiński said.
The inflation projection, an econometric model for price growth that assumes official interest rates are kept flat, showed price growth slowing to slightly above two percent in early 2006 and stabilizing around 2.5 percent in 2007. The previous projection in November showed inflation would not return to the bank's target until the end of 2006.
Rybiński sought to throw cold water on the market's expectations of an interest-rate cut, saying that if the current rate of 6.5 percent were reduced by 150 basis points or more over the next 12 months, inflation would spiral above target.
Still, a cut of 25 or 50 basis points should come sooner rather than later. When asked if rates would be cut in the third or fourth quarter, Halina Wasilewska-Trenkner, a member of the bank's rate-setting council, said: "For now, cautiously, we can expect it. We cannot, however, rule out the possibility of earlier steps."
In its quarterly report, the central bank said that inflation, which stood at four percent in January, will near the target in the second half of this year, easing faster than previously thought, due to the strong złoty.
"We expect that over the next three years the realization of the bank's target is very probable," deputy central bank governor Krzysztof Rybiński said.
The inflation projection, an econometric model for price growth that assumes official interest rates are kept flat, showed price growth slowing to slightly above two percent in early 2006 and stabilizing around 2.5 percent in 2007. The previous projection in November showed inflation would not return to the bank's target until the end of 2006.
Rybiński sought to throw cold water on the market's expectations of an interest-rate cut, saying that if the current rate of 6.5 percent were reduced by 150 basis points or more over the next 12 months, inflation would spiral above target.
Still, a cut of 25 or 50 basis points should come sooner rather than later. When asked if rates would be cut in the third or fourth quarter, Halina Wasilewska-Trenkner, a member of the bank's rate-setting council, said: "For now, cautiously, we can expect it. We cannot, however, rule out the possibility of earlier steps."
