January 28, 2023


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Inflation and interest rates in Poland.  Member of the Monetary Policy Committee: The government is not conducive to slowing inflation

Inflation and interest rates in Poland. Member of the Monetary Policy Committee: The government is not conducive to slowing inflation

Przemyslav Litoniuk, a member of the Monetary Policy Council of One for One, said government policy is not helping to slow inflation. “It is a policy aimed at maintaining popular support,” he added. – It does not surprise me… the elections are in a year and a half, but the channels for providing money to the market today are multiplying – he stressed.

Przemyslaw Litwinyuk, when asked about the level of inflation that will rise in Poland, replied: – A few weeks ago I expected 17%, but these estimates are burdened with a large dose of uncertainty. Currently, we are dealing with a large number of factors that could disrupt the way this indicator is calculated overnight.

– We can’t be sure of anything – he added when asked if inflation this year could reach 20%.

Litwinyuk: Government policy is not conducive to slowing inflation

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Litwiniuk assessed that the government’s fiscal policy is not conducive to slowing down inflation. Government policy, which I cannot comment on, but I can monitor and report on what we observe, does not help slow inflation. It is a policy aimed at maintaining public support. He explained that this does not surprise me, the elections are in a year and a half, but the channels for providing money to the market today are multiplying.

He added that the monetary policy council and the government’s actions are not coherent.

The MPC member also responded as to whether we are dealing with temporary inflation at the moment. – I suppose there may be inflation in Poland in the future. At this point, these are secondary factors that we have not yet felt in our economy. He assessed that we now feel what happened during the pandemic.

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He added that “the amount of aid was not consistent or exaggerated in certain areas.” – This money causes such effects – Guest evaluation of Marcin Zaborsky.

Asked whether inflation within two years would be able to swing around 2.5 percent. Target NBP replied that it depends on the government’s budget policy. – If we observe subsequent transfers of money for consumption purposes, it will be very difficult and no raising of interest rates, even suddenly, to the real price level, i.e. the rate related to the rate of inflation, will change that, she said.

Asked how long Poland’s inflation might exceed ten percent, Litwinyuk said: “I am afraid that the 2023 election campaign will extend this process until 2024, 2025. However, if there are responsible constraints on easing budget policy, we would It can achieve this approximation to the inflation target earlier, mainly due to the base effect.”

High interest rates – very fast process

In his opinion, raising interest rates too fast. I am in favor of monetary tightening, but not violent. “I think interest rates should be raised to a point where the stakeholders in the banking sector, including borrowers, can adjust to this phenomenon,” Litwinyuk said.

– I think this is a very fast process, which is the one we are dealing with today (raising prices – red). Its ineffectiveness is evidenced by the fact that it has no effect on the deposit policy of banks. He added that the increase in interest rates on deposits is due to political pressures and not to monetary policy mechanisms.

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According to Litvinok, “The campaign for sharp interest rate increases in recent months may have been an election campaign and not an element of sound monetary policy.”

Adam Glapinski for a second term

When asked about Adam Glapinski’s appointment to a new term as NBP chief, Litwinyuk replied that it was “difficult to comment on staff decisions” because the MPC had no influence on his election.

Also referred to Adam Glapinski’s visit to the PiS headquarters On Nowogrodzka Street in Warsaw. – Just the fact that someone crosses the threshold of a political party is mostly at risk of contracting COVID, but not (losing) independence – he assessed.

In Poland, the concept of independence when it comes to central banks needs to be re-approached and conditional. For example, I am even more annoyed by the list of former MPC members appointed full-time to NBP – he said. – I think it is a problem whether these people have maintained the independence criterion, and applied for employment at NBP later – he said.

interest on deposit

Litwiniuk also noted the low interest rate on bank deposits. Banks are struggling with excess liquidity, much of it related to one bank – Gospodarstwa Krajowego Bank – according to his assessment. – There are tools related to required reserves, interest rates. We have raised the provision level to 3.5%, but the interest rate on it is still attractive to banks, he said.

He added that if the interest rate level is changed, “we will have some impact on the deposit policy.” NBP enjoys interest rates, free market operations and a good reputation. It was assessed that it affects the economy with these tools.

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The MPC member also spoke about helping borrowers. – One can expect the government to limit its assistance to borrowers, said the MPC member, and that they will deal with it strictly, and not on everyone.

– Working in the form of a political statement announcing some transfers and large funds contributes to building the spiral of wages and prices. As we know, there is a long way from advertising to implementation – he added.

Inflation and interest rates in Poland

During the meeting in May, the Monetary Policy Board decided to raise the key reference rate by 75 basis points – to 5.25 percent. The headline NBP rate is at its highest level since November 2008. This is the eighth consecutive rate hike. The course started in October 2021.

MPC decisions have an impact on WIBOR, which at the same time translates into the amount of loan installments. Because of the cycle of continuous increases, in some cases monthly mortgage payments are as low as Three quarters higher than in September last year.

The Central Statistical Office announced on Friday that inflation in Poland in April 2022 amounted to 12.4%. This is the highest level since May 1998, when it was 13.3%.

Inflation in Poland – April 2022Door

Main image source: TVN24