Inflation will increase slightly – said during the Thursday webinar a member of the Monetary Policy Council Jerzy Żyżyński. However, he added, “then it will stabilize at a lower level within the inflation target.”
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– For now, all forecasts and assessments that we have at our disposal indicate that there will be a slight jump (inflation – ed.) Within or slightly above the path (acceptable range of inflation deviations from the target – ed.), Basically as part of the path, and then stabilize at a lower level within the inflation target – he said.
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The latest July inflation projection of the NBP shows that CPI inflation from 50% the probability will be in the range of 2.9-3.6 percent. in 2020, 0.3-2.2 percent in 2021 and 0.6-2.9 percent in 2022
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Taking into account the means of the 50% ranges Probability, the central path of the July NBP projection assumes average annual inflation in 2020 at 3.3%, in 2021 – 1.3%, and in 2022 – 1.8%.
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Asked if it is possible to further reduce interest rates in Poland, Żyżyński said: “It is possible to zero, now it is 0.10 percent. We believe that so far there is no special need or sense (to further reduce rates – ed.) have little in the plus, but positively than quite zero rate, “he said.
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MPC members on inflation
A meeting of the Monetary Policy Council took place on Tuesday, and a description of the discussion from the meeting was published on Thursday. Most of the Council was of the opinion that inflation would be low in the coming years.
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The majority of the Council members were of the opinion that in view of the expected continuation of economic activity in the world and in Poland at a reduced level, as well as low forecasted inflation abroad and relatively low commodity prices on the world market, inflation would be low in the coming years.
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Council members emphasized that price quotations for the most important commodities were conducive to falling inflation, including with Poland’s major trading partners.
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At the same time, some members of the Council maintained the opinion that price growth could be boosted by reviving consumption after a pandemic, higher food prices resulting from a possible agricultural drought and – in the longer term – an increase in the prices of intermediates associated with a possible deglobalization process.
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Referring to the May reading of inflation (2.9% yoy), some Council members emphasized that despite the sharp decline in total expenditure on services, the annual growth of their prices remained relatively high.
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“This indicates some rebound in demand after the restrictions on the functioning of the services sector are eased, and may result from the increase in the operating costs of this sector in the new sanitary regime. At the same time – in the opinion of those Council members – in the conditions of recession, sales in the services sector will probably remain limited in the coming quarters. It was emphasized that the decline in inflation was accompanied by deepening deflation in the prices of sold production of industry, “it was written.
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On the other hand, some members of the Council pointed out that the majority of core inflation measures remained elevated, and inflation expectations – although they had fallen recently – still signal that consumers perceive inflation as elevated.
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Negative side of rate cuts
Some members of the Council emphasized in June that the impact of NBP activities on reducing credit risk and the consequent lower burden of commercial banks with credit losses were a very important factor that should be taken into account when assessing the effects of monetary policy for the economy.
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At the same time, some members of the Council pointed out that the interest rate reduction contributed to a decrease in banks’ interest margins, which could increase their willingness to increase fees charged. They also emphasized that by reducing households’ income from bank deposits, lower interest rates would encourage the search for other, more risky forms of investing savings.
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Other members of the Council assessed that a certain reallocation of savings – in line with households’ preferences regarding the accepted risk in relation to the expected profit – could be beneficial for the economy. Referring to the lending policy of commercial banks, these members emphasized that it was influenced by many factors, but the monetary policy pursued by the NBP was unequivocally aimed at counteracting the pro-cyclical tightening of lending policy of banks.
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In the statement after the June meeting, the Council assessed that the pace of economic recovery in Poland may be limited by the lack of a clear adjustment of the zloty exchange rate to the global shock caused by the pandemic and loosening of the NBP monetary policy.
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Monetary Policy Council at a one-day meeting on On June 16, all interest rates remained unchanged (reference 0.10% on an annual basis). In July, the Monetary Policy Council also kept interest rates unchanged.
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Between mid-March and the end of May, the Monetary Policy Council lowered the reference interest rate by a total of 140 bp in three steps of 50, 50 and 40 bp.
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The next decision-making meeting of the MPC is scheduled for September 8-9.
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photo-source">Source of main photo: Shutterstock
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