The National Bank of Poland (NBP) prefers to act gradually on interest rates, with potentially several minor cuts rather that a single larger one, the central bank’s governor has said.
Adam Glapinski held a press conference on October 5, a day after the NBP’s Monetary Policy Council cut Poland’s interest rates by 25 basis points, with the reference rate now at 5.75%. The latest move follows a surprising 75-basis point cut in September. The 25-basis point cut was expected by most economists.
According to the Central Statistical Office (GUS), Poland’s Consumer Price Index (CPI) inflation stood at 8.2% in September, down from 10.1% in August.
Glapinski said the NBP preferred incremental changes to interest rates rather than major moves.
“In general, we’re in favour of smooth, gradual changes that do not disturb the sentiment of consumers, banks and businesses; we prefer a series of smaller changes rather than sharp moves, although sometimes accommodation is necessary,” Glapinski said.
“Inflation is now at 8.2% and soon, in the next month, it will be 7% “plus some addition”,” Glapinski said. “At the end of the year it will be between 6% and 7% and in the middle of next year it will be 5%.”
Some external estimates indicate a 4% rate of inflation until the first quarter of 2024.
“Poland’s inflation is expected to decline significantly in the coming quarters,” he continued, explaining that cost and demand pressures worked towards Poland meeting the bank’s 2.5% CPI target.
“We will be working hard in order to achieve this target until 2024,” he said.
When it comes to GDP growth, Glapinski still expects to see minimal growth in 2023 despite subdued economic activity.
“This year, Poland’s GDP should grow slightly, by very little, but still grow,” he said.
The central bank managed to bring CPI down from 18.2% in February to 8.2% in September, as the inflation induced by external shocks had been extinguishing globally, Glapinski argued.
“In Poland we are swiftly heading towards a creeping inflation, as last month we left the space of high inflation,” Glapinski said, dismissing some economists’ claims that Poland’s markedly lower fuel prices compared to the rest of the region contributed to the low inflation reading in September.
“The first adjustment (the 75-basis point cut in September) was significant, but we are in favour of smooth, gradual changes (in interest rates), as we prefer to undertake several smaller moves than a single larger one,” Glapinski said.
The decisions on further interest rate cuts are hinged on “external factors”, he has added.
“If we see that in four to five quarters inflation is indeed falling, the conclusion is clear, if the decline is slower, the conclusion is also clear,” Glapinski said.
The central bank governor was also asked about the condition of the Polish zloty, which weakened significantly after September’s rate cut.
“We are happy when the Polish zloty is strong, as it helps fight inflation, but we do nothing to bolster the exchange rate, as this would mean withdrawing from the dogma of a free exchange rate,” Glapinski said, adding that the central bank was satisfied with the current exchange rate.
Glapinski declined to say whether the central bank had intervened on the FX market, but added that “nothing happened that would require rapid actions.” (PAP/Business World Magazine)
