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Interest rates – September 2023. The Monetary Policy Council has made a decision, there is a reduction. Economists comment

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We are dealing with a decision that is completely disconnected from the state of the economy. We have a huge risk here – said economist Professor Witold Orłowski from the Vistula University and the Warsaw University of Technology in the “Tak jest” program on TVN24, commenting on the decision of the Monetary Policy Council (MPC) to significantly reduce interest rates. According to the expert, high inflation may remain with us “for years”. Former Minister of Finance, currently chairman of the program council of the Institute of Public Finance, Professor Paweł Wojciechowski, pointed out that price increases hit primarily savers.

The Monetary Policy Council (MPC) decided to lower it on Wednesday NBP interest rates by 75 basis points. This means that the reference rate will fall 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.

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. up to 6.75 percent and has kept it unchanged since then. This is 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.

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During the coronavirus 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.

NBP reference ratePAP/Maciej Zieliński

Orłowski: the boldness of this move was surprising

Professor Witold Orłowski from Vistula University and the Warsaw University of Technology said, referring to such a significant rate cut, that “the boldness of this move was surprising.”

– Here we are dealing with a decision that is completely disconnected from the state of the economy. We have a huge risk here. Inflationwhich will probably decrease in the next two months and then stabilize, maybe at the level of 8 or 9 percent, we don’t know that today, it will remain like this for years – said Orłowski.

– This is a violation of the constitution and the Act on the National Bank of Poland. This is not reacting to such a situation when the constitution says that one of the NBP’s tasks is to ensure money stability, and the law says more precisely that it is about price stability (…). This is an extremely risky activity. If 8- or 9-percent inflation persists, it may last for years, he said.

– Inflation is an animal that, once woken up, neither falls asleep nor falls. It’s a genie released from the bottle, which then flies around and you can’t catch it, the economist explained graphically.

Inflation in PolandPAP/Mateusz Krymski

Wojciechowski: Glapologists cut the consensus

However, the former Minister of Finance, currently chairman of the program council of the Institute of Public Finance, Professor Paweł Wojciechowski, said that “the consensus (regarding inflation – ed.) is cut by glapologists, i.e. people who deal with what is in the head of President Glapiński, or what what he will say on the pier, or what some MPC member will say. – The so-called market consensus is created on this basis, and not on the basis of what it should be – said Wojciechowski.

The economist pointed out that the overwhelming number of economists say that interest rates should not be lowered.

– If the NBP’s goal is the inflation target, and we know that we are missing it, because even in the projection, or rather in the draft budget, it is clear that we will actually achieve this goal in four years, then we should increase these interest rates. This is a betrayal of most economists, who rather follow what President Glapiński thinks and thus create a consensus – he said.

– Then they are surprised that they did not realize what the professor’s motives were, and his motive is simply to favor the government more than the government expects – said Paweł Wojciechowski.

Read more: “This move will slow down the pace of inflation decline.” Economists do not hide their surprise at the Monetary Policy Council’s decision

The victims were primarily savers

Wojciechowski pointed out that it is primarily savers who lose from high inflation.

– There are 2.5 million zloty users, borrowers and 38 million Poles who suffer from high prices, high inflation, which will be persistent, this hidden, wicked tax that is actually collected as a result of this monetary policy – he said.

– If we look at who loses the most from inflation, it is those who have any savings who lose the most. The scale of this has been around PLN 250 billion since the inflation was rising, i.e. for approximately two years. However, the scale of losses for PLN users is around PLN 50 billion, he said.

According to Wojciechowski, “this is putting the cart before the horse.” – We are dealing with a certain specific group, if this is the purpose of this decision at all, before we decide on the key elements, which are a sound economic policy, stable in terms of price and budget stabilization. With a very expansionary fiscal policy, an independent central bank is there to counter the expansionary fiscal policy, but it is not doing that – said the professor.

Read more: To what level can loan installments fall? Calculations >>>

Orłowski: the Minister of Finance and the government gain

Witold Orłowski said that “the minister of finance and the government benefit from inflation.”

– Thanks to inflation, the debt to debt ratio is falling GDPbecause it simply does not return the part public debt, which he contracted. Hence the decline that the government is proud of, that the debt-to-GDP ratio has dropped because those who saved money lost money, he said.

The professor added that “savers, who outnumber borrowers, also lose.” – Banks will first reduce rates on deposits, of course, and only then on loans – he pointed out.

– Those who are happy today that they will pay an installment that is PLN 50 or 80 less do not know that if the result is that inflation will not return to 2 or 3 percent in two or three years, and rates will not fall to 3 percent again percent, but it will remain at the level of 8, 9 percent, and the rates will be 8, 9 or 10 percent, then in the next years they will pay many times more than they currently gain with this reduction – the economist calculated.

Main photo source: TVN24



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