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“The NBP and the Polish government were afraid of inflation.” Comments after the interest rate hike

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After a period of disregard, the National Bank of Poland and the Polish government apparently were afraid of what was happening with inflation, these two institutions came to the conclusion that inflation was getting out of control, that the so-called inflation expectations were beginning to rise – Prof. Witold Orłowski. Other guests of the Special Report discussed the pressure on the Monetary Policy Council. Sławomir Dudek from the Civic Development Forum noted that this was “a 180-degree turn to the current narrative”. The MPC raised the reference rate to 0.50%. with 0.10 percent

“You know the pressure is rising because everyone is raising it,” he said. He recalled that it was done, among others, by the Czechs.

– The zloty was weakening and the price of commodities, especially oil, was strengthening, which meant that this inflation could be even higher. The pressure on the Council was tremendous. There was also a letter from members of the Council, former heads of central banks, who called for a rate hike, he said.

Read also: Former heads of the NBP and MPC members on inflation. “Informal Tax on Cash and Savings”

According to the expert, the interest rate hike “is not much” – This is rather a signal hike, showing – and rightly – that the Council is starting to take care of inflation – he assessed.

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– Such an increase has already appeared on the zloty market – zloty probably by 1 percent. is almost appreciating against other currencies. Very good, because the price of oil is denominated in dollars and this appreciation against the dollar is a very welcome move – he said.

Interest rates and loan installments

He noted that interest rates will affect the amount of loan installments.

– This is an undesirable move for those who have zloty loans – he said. The expert emphasized that there will be no large increases here. – I saw calculations based on a loan of PLN 300,000 in loans, with an installment of 1,100 with pennies, it was PLN 1,200, PLN 60-70 upwards. Not much, but it shows what people can expect if interest rates should rise by 5%. I saw the UOKiK calculator which says that when interest rates increase by 5 percent, the installment may increase by 50 percent. It is important that you calculate it by taking loans – he said.

According to the expert, the increase in interest rates will not cool down the situation on the real estate market.

– Such a raise will not cool him down, it may even paradoxically accelerate taking credits. This is obviously bad reasoning. We have almost 100 percent. loans are taken with a variable interest rate, there are supposedly offers for 5 years with a fixed interest rate, but then you have to negotiate it with the bank. It is not like in many Western countries, where the bank ensures that it protects itself against changes in interest rates throughout the life of the loan and gives us a fixed interest rate – he said.

NBP reference ratePAP

– This will act more towards slowing down inflation, although not too much, because if it is read that phosphates in China will be banned from exports, and China is 30 percent. exports, you already know what happens to artificial fertilizers, you can imagine what will happen to your food. This will not be affected by an increase in interest rates – he assessed.

– Crude oil has reached the highest level in 7 years, the price of coal is breaking records. You don’t look at it, and I recently saw a silicon price chart – 300 percent. up, he said.

– For now, Professor Glapiński, his colleagues will see how it will work. They already made a small move, but they did. The rest is probably not this year, but next year.

“180 degree turn”

Another guest of TVN24 BiS was Sławomir Dudek from the Civic Development Forum.

– It is a complete surprise, a 180-degree turn of the current narrative. Apart from these members of the hawkish monetary policy, most of the council said that inflation was temporary, that there was nothing to be afraid of, that there was no threat, he said.

According to the expert, “it’s a good move”.

– It is also an admission of a mistake – because the narrative is reversed, that, however, inflation is not temporary and this narrative was wrong, inappropriate – he said.

– We have a hot economy, the deferred demand for what we did not spend during the crisis is being realized, we buy in stock. For example, the housing market – not only are flats purchased for housing needs, but we are also running away from high inflation and zero interest rates, negative real interest rates. Companies also buy raw materials in stock. They gather, they do not know if the borders will be closed – he said.

– All this has driven a very high demand and in my opinion it is not just supply that decides – inflation expectations are also high, they may not grow, as they have jumped up recently, but remain at a very high level – he said. – We were in danger of anchoring these inflation expectations and launching a wage-price trigger, which has already been observed. (..) The effects of an even later reaction would be much worse for the economy than it is now. Now you have to give a signal, cool it down a bit – he said.

The expert said that this is not the end of interest rate increases. – For now, there is a trial dose of the drug, we will see how inflation expectations will work, whether the demand for mortgage loans will slow down, but if not and inflation will be boosted by energy prices, an increase in price-setting taxes, it may be difficult here. In my opinion, this is not the end of increases – he stressed.

“This is the worst thing – rising expectations”

The change in interest rates was also commented on by PwC’s chief economic advisor, Prof. Witold Orłowski. – First of all, please do not add me to the analysts who did not expect, were surprised by this move. There was no doubt for me, especially as this morning even the Prime Minister said that something should be done about it. It is known that our central bank has listened a lot to what the government has been doing in recent years, he said.

– This raise is small. This means that after a period of disregard, the National Bank of Poland and the Polish government apparently became scared of what was happening with inflation, these two institutions concluded that inflation was getting out of control, that so-called inflation expectations were beginning to rise – he said.

He explained that “inflation expectations are not the inflation that is recorded, but what people expect and feel for the future”.

– This is the worst thing – rising expectations. If people believe that inflation is high and will accelerate, they will demand wage increases. If employers give them raises, also expecting that they will raise their prices, because production costs are rising. This is called a spiral of inflation, and it can spin and lead to ever faster price increases. Of course, I hope that this will not happen in Poland, but the institution that has the power to break the spiral is the NBP, because it has the tools to do so in the form of interest rates – he said.

– If the central bank wants to stop the rise in inflation expectations, it must show that it is ready to fight inflation with very harsh measures. I am speaking very harshly, because raising interest rates causes a slower economic growth, an increase in unemployment and fewer loans. Such a serious lift is painful for all of us. If the central bank does not convince us, inflation expectations will rise, inflation will rise and someday even bigger increases will have to be introduced – he said.

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