Central bank prefers incremental changes in interest rates says governor
The National Bank of Poland (NBP) prefers to act gradually on interest rates, with potentially several minor cuts rather that a single larger one, the central bank's governor has said.
Adam Glapinski held a press conference on Thursday, a day after the NBP's Monetary Policy Council cut Poland's interest rates by 25 basis points (bps), with the reference rate now at 5.75 percent. The latest move follows a surprising 75-bps cut in September. The 25-ps cut was expected by most economists.
According to the Central Statistical Office (GUS), Poland's Consumer Price Index (CPI) inflation stood at 8.2 percent in September, down from 10.1 percent in August.
Glapinski said the NBP preferred incremental changes to interest rates rather than major moves.
"In general, we're in favour of smooth, gradual changes that do not disturb the sentiment of consumers, banks and businesses; we prefer a series of smaller changes rather than sharp moves, although sometimes accommodation is necessary," Glapinski said.
"Inflation is now at 8.2 percent and soon, in the next month, it will be 7 percent 'plus some addition'," Glapinski said. "At the end of the year it will be between 6 and 7 percent... and in the middle of next year it will be 5 percent."
Some external estimates indicate a 4-percent rate of inflation by the first quarter of 2024, he added.
"Poland's inflation is expected to decline significantly in the coming quarters," he continued, explaining that cost and demand pressures worked towards Poland meeting the bank's 2.5-percent CPI target.
"We will be working hard in order to achieve this target by 2024," he said.
When it comes to GDP growth, Glapinski still expects to see minimal growth in 2023 despite subdued economic activity. "This year, Poland's GDP should grow slightly, by very little, but still grow," he said.
The central bank managed to bring CPI down from 18.2 percent in February to 8.2 percent in September as the inflation induced by external shocks has been extinguishing globally, Glapinski argued.
"(In Poland - PAP) we are swiftly heading towards a creeping inflation, as last month we left the space of high inflation," Glapinski said, dismissing some economists' claims that Poland's markedly lower fuel prices compared to the rest of the region contributed to the low inflation reading in September.
"The first adjustment (the 75-bps cut in September - PAP) was significant, but we are in favour of smooth, gradual changes (in interest rates - PAP), as we (prefer - PAP) to undertake several smaller moves than a single larger one," Glapinski said.
The decisions on further interest rate cuts are hinged on "external factors," he added. "If we see that in four to five quarters inflation is (indeed - PAP) falling, the conclusion is clear, if the decline is slower, the conclusion is also clear," Glapinski said.
The central bank governor was also asked about the condition of the Polish zloty, which weakened significantly after September's 75-bps rate cut.
"We are happy when the Polish zloty is strong, as it helps fight inflation, but we do nothing to bolster the exchange rate as this would mean withdrawing from the dogma of a free exchange rate," Glapinski said, adding that the central bank was satisfied with the current exchange rate.
Glapinski declined to say whether the central bank had intervened on the FX market, but added that "nothing happened that would require rapid actions." (PAP)
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