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Central bank approaching end of rate hike cycle says governor

Radek Pietruszka/PAP

Poland’s central bank could be approaching the end of a rate-hiking cycle but may not be quite there yet, said Adam Glapiński, governor of the National Bank of Poland (NBP).

Glapiński held a press conference on Friday following Thursday’s announcement of a 50 basis point interest rate increase by the NBP’s Monetary Policy Council (RPP), which brought Poland’s reference rate to 6.5 percent.

The hike was the tenth on the trot.

“We’re approaching the end of the cycle but we’re not necessarily there yet,” Glapiński said. “We’re approaching the end, but it may not be the highest point yet. We’d like to make the reservation that our assessment may change.”

According to Glapiński, the RPP went for a smaller increase than the expected 75 basis point hike due to signs of deceleration in the economy.

“The increase by 50 basis points instead of 75 basis points results from the fact that we’re observing strong signs of a slow-down, also in Poland,” the governor said. “If we go down from more than 8 percent (of GDP growth in the first quarter of 2022 – PAP) to 2-2.5 percent at the beginning of next year, it will mean a radical slow-down, and it should have an anti-inflation effect.”

Glapiński also predicted that Poland’s inflation, which reached a high of 15.6 percent in June, should peak during the summer and then go down.

“I’d like to see inflation slowing down gradually after the summer holidays,” he said, adding that this was the central bank’s basic scenario.

“But if inflation keeps going up, we’ll continue hiking rates,” he said. “But if inflation stabilises during the summer and goes down, we won’t do that.”

In Glapiński’s view, external factors, such as the war in Ukraine, supply chain bottlenecks and the high prices of commodities are responsible for three-thirds of Poland’s inflation.

“According to our estimates, internal factors are responsible for no more than one-fourth of inflation, while 75 percent is inflation brought in from the outside,” he said.

Glapiński also said that if the government decides to prolong the period of tax cuts on fuels and basic foodstuffs into 2023, inflation may be lower than projected by the central bank.

“I don’t know if the government has decided for how long the anti-inflation shield should be in place,” he said. “If it’s prolonged to next year, inflation will be lower than indicated in projections.”

Glapiński claims that inflation will return to the central bank’s target range of 2.5 percent plus/minus one percentage point in 2024.

The governor also warned Poland may be facing a technical recession, or a drop in GDP growth for two consecutive quarters.

“I don’t expect a recession in Poland, although a technical recession is possible, GDP growth may be negative for two quarters, but it’s not a recession yet,” he said.

The RPP will hold its next policy meeting in September.

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