Interest rates in Poland. MPC. Proposal for a large increase. There are results

During the July meeting of the Monetary Policy Council (MPC), application for interest rate hike by 200 basis points, which was supported only by MPC member Joanna Tyrowicz – according to the NBP's statement on Friday. The remaining members of the Council, i.e. Adam Glapiński, Ireneusz Dąbrowski, Iwona Duda, Wiesław Janczyk, Cezary Kochalski, Ludwik Kotecki, Przemysław Litwiniuk, Gabriela Masłowska and Henryk Wnorowski, were against.

Tyrowicz files applications for 200 bps rate hike from November 2023

In July, the Monetary Policy Council kept interest rates unchanged, including the reference rate of 5.75%.

In July, the MPC members assessed that there was no need to increase interest rates in response to the expected growth in the coming quarters. Inflation – according to the description of the discussion at the MPC meeting on 2-3 July.

“When discussing the inflation outlook, the Council members pointed out that, according to the July projection, inflation would probably rise in the coming quarters and reach a level significantly higher than the NBP inflation target. It was emphasised that this would occur amidst the ongoing economic recovery and strong wage growth. It was pointed out that in these circumstances, it was important for the medium-term outlook how the expected increase in inflation would affect inflation expectations and wage dynamics, as well as how households would be inclined to consume and save,” the minutes stated.

It was emphasized that the increase energy prices in the second half of 2024 will be a supply shock, which periodically increases inflation but at the same time reduces household disposable income.

Some Council members pointed out that the results of the July projection also indicated an increase in food price dynamics in the following quarters due to the delayed effects of the increase in the VAT tax and the increase in prices of agricultural raw materials.

In this context, the Council members pointed out that, in line with the Monetary Policy Guidelines, the medium-term nature of the inflation target means that – due to macroeconomic and financial shocks – inflation may periodically run above or below the target, including outside the specified range of deviations from the target.

“It was emphasized that the response of monetary policy to shocks is flexible and depends on their causes and the assessment of the durability of their effects, including the impact on inflation processes. At the same time, it was noted that according to the latest projection – prepared with the assumption of unchanged NBP interest rates – inflation will return to the NBP target in 2026. This suggests that there is currently no need to increase interest rates in response to the expected increase in inflation in the coming quarters,” it was written.

The majority of the Council members indicated that the current level of interest rates was a factor that should limit inflationary pressure in the medium term. Some Council members assessed that in the context of the forecasted increase in inflation in the coming quarters and the related possible increase in inflation expectations, real interest rates would decline.

The Council members pointed out that the shape of fiscal policy remains a risk factor for the inflation outlook. At the same time, they maintained their assessment that the strengthening of the euro zone also contributes to reducing inflation. zloty exchange ratewhich is consistent with the foundations of the Polish economy.

The majority of the Council members assessed that, despite the observed economic recovery, demand and cost pressures in the Polish economy remained relatively low, which, given the weakened economic situation and lower inflationary pressures abroad, contributed to limiting domestic inflationary pressures.

At the same time, during the July discussion, an opinion was expressed that, given the forecasted increase in inflation, as well as the recovery in consumer demand and high wage dynamics, the current level of NBP interest rates is too low to ensure a sustainable return of inflation to the target in the medium term.

Interest rates remain at their current level from October 2023. The main, reference interest rate of the National Bank of Poland from October 5, 2023 is 5.75 percent

Other interest rates: – Lombard rate 6.25 per cent, – deposit rate 5.25 per cent, – bill of exchange rediscount rate 5.80 per cent, – bill of exchange discount rate 5.85 per cent.

In turn, inflation in Poland in July amounted to 4.2 percent. A month earlier, in June, prices of goods and services grew at a rate of 2.6 percent year-on-year.