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Interest rates and inflation. Przemysław Litwiniuk on the future decisions of the Monetary Policy Council

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Currently, there are no grounds for another reduction in interest rates – said Przemysław Litwiniuk, member of the Monetary Policy Council, on TOK FM radio. In his opinion, in the medium term, fuel prices and the issue of protective shields may have a major impact on inflation.

During the last meeting in October, the Monetary Policy Council (MPC) decided to reduce the rate NBP interest rates by 25 basis points. Thus, the reference rate dropped to 5.75 percent.

This was the second consecutive reduction in interest rates. In September, the Monetary Policy Council decided to reduce the NBP interest rates by 75 basis points. Such a large scale of the reduction surprised many economists.

NBP reference ratePAP/Maciej Zieliński

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WITH data from the Central Statistical Office it follows that inflation in September 2023 it was 8.2 percent, year-on-year. Compared to the previous month, prices decreased by 0.4 percent. In August, the increase in prices of goods and services was 10.1 percent on an annual basis.

Inflation in Poland [wrzesień 2023 r.]PAP

What’s next for interest rates?

MPC member Przemysław Litwiniuk was asked about interest rates and inflation in TOK FM.

– There are no grounds to pursue another reduction in interest rates at this time. We will find out from the November projection whether there will be grounds to tighten policy, he said.

– I expect that (in the November projection – editor) we will see the first signs of economic recovery, a factor that the government will be happy about, but the Monetary Policy Council will be less happy about, due to the fact that the increase in consumption will contribute to changing the path of disinflation. (…) The previously designed curve showing the disinflation path will be less sharp and will not be as ambitious as previously assumed, although the most optimistic course of this process was not assumed – he added.

According to Litwiniuk, the so-called expert corrections.

– Of course, there is magic in such a process as expert proofreading. When data are compared and conclusions are drawn from them (…), NBP experts adjust the results of these calculations to their expert predictions. Until we know in what direction a given process will be adjusted according to their views, we do not fully know whether the assumptions made are accurate or risky, Litwiniuk pointed out.

Large impact of fuel and shield prices

He added that they could have a significant impact on inflation developments in the medium term fuel pricesdue to the pricing policy of their producers and the uncertain geopolitical situation, as well as the issue of protective shields, which are currently unknown whether they will be extended and possibly in what shape.

– Excluding the effects of administered prices and, more broadly, limiting fiscal pressure on some prices may result in an increase in inflation by up to 2-3 percentage points. – added.

Main photo source: Shutterstock

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