It cannot be ruled out that the economic situation will develop in such a direction that a discussion on adjusting monetary policy will be justified before 2026, when there will be certainty that inflation will reach its peak and forecasts will show that it is permanently decreasing to the target – he said PAP Biznes, Governor of the National Bank of Poland, Adam Glapiński.
The NBP Chairman noted in response to questions from PAP Biznes that he was speaking immediately after the one-day non-decisional meeting of the Monetary Policy Board, which concluded on Tuesday, 20 August.
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Interest rates maintained
In recent months, the Council has kept the NBP interest rates unchanged, and we now know that this was the right thing to do. We have managed to bring inflation down rapidly from high levels without excessive costs to the economy. For almost half a year, price dynamics have remained at a level consistent with the target. At the same time, as we expected, inflation increased in July. As for the Council’s future decisions, I have repeatedly stressed that they are taken taking into account the information available at a given time on the outlook for inflation and economic activity.
– wrote Glapinski.
The Council does not plan decisions in advance and any statements regarding the Council’s future actions are conditional. Future decisions will depend on a number of factors influencing price processes, including wage dynamics, consumption growth, but also the economic situation abroad and decisions on energy prices, which may also affect inflation expectations. Depending on the combination of these factors, sooner or later there may be scope for interest rate cuts. It cannot be ruled out that the economic situation will develop in such a direction that discussion on monetary policy adjustment will be warranted before 2026, when we will be certain that inflation will have peaked and forecasts will show it falling steadily towards the target.
– he added.
He emphasized that everything would depend on the information received and the assessment of the macroeconomic outlook by the Monetary Policy Council.
At a press conference in early July, Glapiński said that with the rise in inflation, which according to the latest projection is expected to occur from July this year until approximately mid-2025, you can forget about reducing interest rates, and such a possibility may arise in 2026 at the earliest.
Glapiński noted in his latest response to PAP Biznes that in recent weeks, there has been increased volatility in global markets following a series of worse-than-expected data, mainly from the US labour market. In his view, this fits into the scenario of slightly slower-than-previously-expected growth in some economies.
Particularly important for activity in Poland are the growth prospects in our immediate environment, including the euro area and especially in Germany, which has been on the brink of recession for a long time. Unfortunately, there are no signs of improvement so far and the long-awaited recovery is still being postponed. Unfortunately, weak external demand weighs heavily on exporters, which is reflected not only in external sales data, but also in weak industrial production results.
– indicates the president of the NBP.
Abroad, the threat of a return to high inflation is gradually disappearing. The disinflation process continues in the United States. In the euro area, price dynamics have stabilised at a relatively low level. The outlook in this regard appears favourable, which is further supported by a certain decline in world oil prices in recent weeks. In these conditions, market expectations of interest rate cuts in the major economies have intensified.
– he added.
In the opinion of the President of the National Bank of Poland, the situation in the environment of our economy will be increasingly important for the outlook for Polish GDP, but it is too early to assess the effects of the higher-than-expected GDP reading for the second quarter (3.2% year-on-year vs. consensus 2.8%).
Recent data from the Polish economy suggest that the economic recovery is gaining momentum. Preliminary GDP figures for the second quarter of this year were even higher than expected, likely due to strong consumer demand amid still-fast wage growth. It is too early to assess whether these improved figures will change the outlook for economic growth, especially since earlier data on exports, industrial production and construction and assembly output suggested a somewhat smaller scale of recovery.
– wrote Glapinski.
In any case, the strong wage growth currently observed will not last forever, because next year neither the minimum wage nor public sector wages are likely to increase as significantly. This, in turn, will translate over time into a slower consumption dynamic, which will make the situation in the environment of our economy increasingly important for the prospects for Polish GDP. Conditions abroad will, of course, also play an important role in shaping price-setting processes in Poland.
– he added.
What about inflation?
The NBP Governor indicated that, according to the central bank’s projection, CPI inflation is expected to increase in the coming quarters and return to the target in 2026. He noted that these forecasts are, of course, based on a number of assumptions, including those concerning the future development of energy prices, which – as assumed in accordance with the applicable legal status – will increase significantly again in January 2025, when the protective measures expire.
However, this does not have to happen, because the question remains whether these activities will actually be expanded in some way. And this, in turn, could reduce the trajectory of inflation next year. An additional disinflationary factor could also be the weaker economic situation abroad, which I mentioned. But the risks are by no means skewed in one direction.
– wrote the President of the National Bank of Poland.
Price dynamics could also turn out to be stronger than expected if the economic recovery progresses more quickly and the adjustment in wage dynamics is more dispersed over time. This could, in particular, increase the persistence of services price inflation, which remains high today. In other words, the inflation path outlined in the July projection is, as usual, subject to uncertainty.
– he added.
The next decision-making meeting of the Monetary Policy Council is scheduled for September 3-4.
gah/PAP
