Poland’s Monetary Policy Council (MPC) decided to formally end the tightening cycle, with interest rates cuts possible in September once conditions were met, Adam Glapinski, the governor of the National Bank of Poland (NBP), said.
Glapinski held a press conference a day after the MPC decided to keep the rates unchanged for the tenth time running, in line with market expectations, following 11 consecutive increases aimed at curbing inflation. Poland’s reference interest rate is still at 6.75%.
“The cut by 25 basis points (bps) in September is possible once there is a 90% certainty that inflation will fall in the coming quarters and years,” Glapinski said.
Another condition is a single-digit CPI, with the MPC looking into the matter after the summer holidays, the central bank chief has added.
“Inflation has been standing still, with a 0% growth month on month for two months, May and June,” Glapinski said. “In June, the CPI stood at 11.5%, which was the lowest level in over a year.”
In the fourth quarter, Glapinski expects consumer inflation to go down to 7-8% and reach the NBP’s target range of 2.5% plus/minus 1% in the second half of 2025, given nothing unexpected happens such as aggravation of the war in Ukraine.
The NBP head reiterated that he expected a soft landing scenario for Poland’s economy in exiting high inflation, with the GDP growth rate nearing 0%, but with no recession expected.
“In the second half of the year, our economy should accelerate together with external shocks going away,” Glapinski forecast.
At the same time, he warned industry and trade might experience a hard time, as real wages should be growing again in the second half of this year after recent declines of 2-3%.
Also costs may be on the rise.
“We assume that there is some safety cushion in businesses that will allow to offset this,” Glapinski said, noting that in 2022, 50-60% of price hikes derived from companies increasing their margins.
According to the recent flash estimate from the stats office GUS, Polish consumer prices likely increased by 11.5% YoY on no monthly change in June after a 13% YoY increase in May.
Poland’s annual average consumer inflation has a 50% chance of falling in the 11.1-12.7% range in 2023, then within the 3.7-6.8% band in 2024 before touching on the NBP’s target of 2.5% by falling in the range of 2.1-5.1% in 2025, according to the central bank’s latest inflation projection cited in the MPC’s policy statement.
Poland’s latest monetary policy turn contrasts with the still hawkish stance of the US Federal Reserve, the chair of which Jerome Powell has recently indicated some more rate hikes may be needed to bring inflation to the target of 2%, albeit at a slower pace. The latest CPI data for May showed inflation at 4% in the US, a reading below the Fed funds rate at roughly 5.1%.
The European Central Bank (ECB), which raised interest rates by another 25 bps in June, also seemed to be determined to continue with rate hikes, despite a preliminary CPI reading for the eurozone at 5.5% in June against the ECB’s rate on main refinancing operations now at 4%. ECB president, Christine Lagarde, has said Europe’s central bank will likely continue rising rates, adding that nothing indicates the peak rate has been reached yet.
Poland’s main interest rate at 6.75% is still in a deep negative territory considering the preliminary CPI reading for June at 11.5%. The July 7 decision on ending the rate-hike cycle can be seen as a show of the central bank’s confidence in a downward inflation path over the coming months. (PAP/Business World Magazine)
