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Inflation in Poland. Interest rates lowered – comment Alicja Defratyka, Ignacy Morawski

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We have a long way to go to get back to normal. I think that yesterday’s decision on interest rates should cause concern about whether we have the right determination to permanently stabilize inflation, said Ignacy Morawski, an economist from “Puls Biznesu” in the “Fakty po Faktach” program on TVN24. Alicja Defratyka, economist, author of the “Interesting Numbers” project, assessed that Poles’ joy from the interest rate cut may be premature.

The guests of the “Fakty po Faktach” program on TVN24 were Alicja Defratyka, economist, author of the “Interesting Numbers” project, and Ignacy Morawski, economist at “Puls Biznesu”. Among other things, they were asked about whether Poles should be happy with Wednesday’s significant decision of the Monetary Policy Council lowering interest rates.

Should Poles be happy about the reduction in interest rates?

– I think it will be premature joy – said Alicja Defratyka. She explained that people who have PLN loans will be happy, but not immediately. – They have loans based on three-month or six-month Wibor, so it does not happen automatically that they will see lower installments tomorrow, especially since the market expected this interest rate cut, maybe not in such an amount, but it did. So they had already experienced slightly lower installments in the previous months, she noted.

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She emphasized that there are approximately two million people in Poland who have PLN loans. – However, there are more Poles. We will feel it on our savings, because it is possible that the interest rate on our deposits and savings will drop overnight – she noted.

Ignacy Morawski emphasized that “there is a certain risk associated with cutting interest rates too early.”

– People should be happy about this inflation slows down because it is a positive phenomenon. However, we have a long road ahead of us to return to normality. I think yesterday’s decision on interest rates should cause concern about whether we have the determination to stabilize this inflation permanently, he explained.

He emphasized that “we can be happy about falling inflation, but looking further ahead, there are some risk signals.”

– Anyway, the third biggest depreciation of the zloty in a decade or even in a dozen or so years speaks for itself – said Morawski.

“Markets did not listen to what the president said”

Alicja Defratyka assessed Thursday’s speech by Adam Glapiński, the president of the National Bank of Poland, as “economic nonsense”. – There was a lot of nonsense that contradicted economic theory – she said.

– The markets did not listen to what the president said, that we should be happy, as he canceled inflation – she commented, referring to the powerful weakening of the zloty after the interest rate cut and the depreciation of the Polish currency during the conference of the head of the Polish central bank.

Read more: “Powerful weakening of the zloty”

According to the economist, “markets have no confidence” (to President Glapiński – editor’s note). – Even yesterday, after this reduction, economists in the world laughed that it was in Poland that the inflation target was set at (at the level of) 10 percent. Today at the conference, the president (Glapiński – editor’s note) set this target at 5 percent, because he said that inflation at 5 percent is imperceptible to people. And this is one of the examples of such nonsense that can be said directly – she pointed out.

“The zloty has suffered the greatest weakening in the last decade”

The guests of the “Fakty po Faktach” program were asked whether the decision to reduce interest rates was logical. – No, it’s not. We do not have single-digit inflation, said Alicja Defratyka, adding that the latest data are for August – 10.1 percent. Data for September will be available only in mid-October.

– Another condition that we will quickly reduce this inflation is not met. As long as we actually go down from inflation above 10 percent, which we have now, to such a level, for example, 7 or 8 percent, we can stay at this level for a long time. This means that we will not reach the inflation target for a long time. This contradicts the second condition, which was not met, she explained.

In July, during a press conference, President Glapiński announced that the Monetary Policy Council had officially ended the cycle of interest rate increases. When asked whether it is possible to cut interest rates already in September, ie at the next decision-making meeting of the MPC, Glapiński replied that it was possible if two conditions were met.

– If there is a single-digit inflation and if the projection for the coming quarters and years tells us with 90% certainty that it will continue to fall, then (an interest rate cut – ed.) is possible in September. But we are talking about a decline of 0.25 percentage points, said the head of the NBP two months ago.

“It was a huge surprise for the market”

Was the decision to significantly cut interest rates a surprise? – Yesterday, the zloty suffered the greatest weakening in the last decade, not counting the moment when the Covid pandemic began and when it started war in Ukraine. It was a huge surprise for the market – replied Ignacy Morawski.

– Is the explanation (by President Glapiński – editor’s note) logical? In my opinion, it does not fully answer the doubts. Let me remind you that in July, the president of the National Bank of Poland said that if interest rates were reduced, they would be slow. In quarter-percentage-point steps. Not much has changed in the economy since then, and yet the central bank is making sudden moves, he said.

He explained that “central banks reserve this type of moves for situations when something absolutely surprising happens.”

– The last time this scale of interest rates was reduced in Poland was at the peak of the financial crisis in 2008 – he pointed out.

The Monetary Policy Council’s decision to reduce interest rates

On Wednesday, the Monetary Policy Council decided to cut the NBP interest rates by 75 basis points, the Wednesday communiqué said. The reference rate will drop to 6.00 percent.

Most economists of the largest banks in Poland expected a reduction in interest rates, but on a smaller scale – by 25 basis points.

NBP reference ratePAP/Maciej Zieliński

From October 2021 to September 2022, the Monetary Policy Council increased the reference rate 11 times in a row, by a total of 665 basis points to 6.75%. and until Wednesday, September 6, it remained unchanged. This was the highest level of rates since the end of 2002 and the fastest rate of rate increases in Poland in the history of the Monetary Policy Council.

During the COVID-19 pandemic in spring 2020, the Monetary Policy Council cut the main rate to a record low of 0.1%. Before the pandemic, until March 2020, the reference rate was kept at 1.50% for 5 years.

Interest rates in Poland

The MPC resolution entered into force on Thursday, September 7. Interest rate levels after Wednesday’s decision:

  • reference rate 6.00 percent on an annual basis;
  • lombard rate 6.50 percent on an annual basis;
  • deposit rate 5.50 percent on an annual basis;
  • rediscount rate of bills of exchange 6.05 percent on an annual basis;
  • bill of exchange discount rate 6.10 percent on an annual basis.

The next decision-making meeting of the Monetary Policy Council is to be held on October 3-4.

Read also: President of the National Bank of Poland: today is a happy day

Main photo source: TVN24

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