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Erste Group: NBP rate decision

February 6, 2013
MPC delivered another 25bp cut.

The interest rate was lowered to 3.75%. As was broadly expected, the council voted for a 25bp cut. Despite the hawkish statement after the previous meeting and possible pause in the cycle, the latest comments suggested that the easing cycle would continue in February. The recent weak data and dropping inflation supported the decision about the 25bp cut.

Notes from press conference and MPC statement: The council announced that the interest rate cut would support economic activity and prevent the inflation rate from dropping below the lower bound of the target (i.e. below 1.5%). Further decisions will depend on economic data and what the inflation projection (to be released in March) will show. Belka said that, at some point, there was a need to recapitulate the policy, but we were not in wait-and-see mode yet.

Is it the end of this round of the cycle? Not yet. The MPC left the way for further cuts open and we believe it may happen as soon as in March. Then, the council will switch to wait-and-see mode. At this point, we do not expect bigger cuts than to 3.50%, as, within that time horizon, the inflation rate will stabilize at around 2%, the prospects for economic growth will improve (the impulse will come from the slowly improving external environment), and thus the council may consider rates to be at their proper level - unless the macro outlook changes. The next inflation projection (to be released in March) will be crucial for further monetary policy direction.