Monetary Policy Council – what it is and how it combats inflation [materiał partnera]

What is the responsibility of the Monetary Policy Council (MPC)?

As the name suggests, the Monetary Policy Council is responsible for making decisions that favor this level of inflation. […] or deflation, because it can vary, which will be good for our economy. Or, in other words, to maintain prices and price dynamics […] at a level that serves our economy well. That’s why we have this mission: we defend the value of money, we care about the value of money. That’s the mission of the MPC, which means they don’t have to raise or lower rates at all costs.

This is simply why the people who are on the Council receive so many different analytical materials, studies, documents that are issued continuously, including those that are published successively, because something important is happening, so that they can observe the trends in the economy, both in the medium term, because in the long term there is little that can be predicted so that they can decide whether the level of interest rates that we have at the moment serves our economy well and whether it will not cause excessive pressure on price increases or, on the contrary, will actually cause these prices to fall. But normally if prices fall, that is, we have deflation, it is at the cost of a very weak economic growth dynamic, which means that it manifests itself in a very low level of GDP dynamics. Of course, we are talking about the most synthetic measures. As far as the functioning of the Council is concerned, it is much more comprehensive and there are many different indicators that are examined and analyzed both from the point of view of fiscal policy and from the point of view of sectoral policy, but generally the point is that the level of interest rates serves the economy well.

Should interest rates be higher than inflation?

Yes, we are not going to stop inflation this way, we are not going to end inflation. On the contrary, we are going to adjust it because we are forgetting one more thing. The high, very high price of money will not only freeze our economy. It will cause a flight into the gray zone, it will cause the development of some pathological phenomena in the economy.

What tools does the Monetary Policy Council have to combat inflation?

The basic tool is, of course, the reference rate, because all other rates are related to it. They go up or down, some there, in our case, half, fifty basis points. However, in addition to this, we also have a very important rate, which is rarely talked about, which was used, for example, during COVID-19 by the National Bank of Poland. Later, we gave up on it. Moreover, it was also used in other periods, at least twice, not by this Monetary Policy Council, but in previous periods, namely the reserve requirement rate.

How do current supply and consumer prices affect living standards?

[…]We currently have a situation where, as far as supply prices are concerned, we actually have deflation. Nobody loses much there, but our companies are certainly not as profitable as they used to be. Consumer prices, with the exception of food, but on average are pretty much our target, right? So this increase is moderate, real wages are growing faster, so people here shouldn’t feel any discomfort, at least those who work, those who have a salary, because it’s different with pensions and benefits.

The full conversation is available on the page What does the Monetary Policy Council (RPP) do? (youtube.com)