The zloty inched higher in the first half of October, as the economy showed gradual signs of recovery, but drifted back below Zl4.20/euro on our survey date even as the euro weakened (daily chart, next page). The National Bank of Poland held rates at 2.5% last week, as expected, having earlier pledged to keep rates at record lows to support the recovery. In its accompanying statement, the bank indicated that monetary tightening was unlikely until mid-2014 at the earliest, citing the moderation in global economic activity, the gradual nature of the domestic recovery and below target inflation as the main reasons for its cautious approach. With a considerable amount of slack in the economy, low inflation remains a concern. The bank expects consumer price increases (only 1.0% in September) to remain below its target of 2.5% (with a band of +/-1%) until 2015. However, in its quarterly inflation review, it revised up its full-year 2014 projection range from between 0.4% and 2.0% to between 1.1% and 2.2% owing to expectations of a revival in domestic demand. Renewed strength in manufacturing saw industrial production rise by 4.9% (y-o-y) in Q3, whilst exports, which surged 5.1% (y-o-y) in Q2, are expected to improve. Stubbornly high unemployment (the rate remained unchanged at 13% in September) continues to be a concern and last month saw a number of anti-government protests in the capital Warsaw. Campaigners are calling for more action to boost employment and wages. Opinion polls suggest that support for the current government is at an all-time low ahead of elections in 2015.
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