Poland: June Inflation Report Summary
Overview:
The June Inflation Report sees a downgrade to the growth outlook for the Polish economy. However, this dampening effect on prices is more than offset by the impact of assumed higher food prices and a weaker zloty on the inflation forecast. Inflation is seen falling back within the target range (1.5%-3.5%) and remaining towards the bottom of it in the next eighteen months before rising back towards the 2.5% mid-point of the target by the end of 2011. The February forecast had seen inflation fall below the bottom end of the target range. This suggests, other things equal, the room for further rate cuts is now more limited after a cumulative 150bps easing so far this year. Further cuts might be warranted if the government limits its expansive fiscal policy and/or the zloty starts to appreciate from current weak levels.