Contrary to expectations of most analysts, the Monetary Policy Council decided to cut interest rates by as much as 50 base points, establishing the reference rate at 2.0 percent. – Monetary authorities could no longer tolerate the fact that the consumption price dynamics diverge from the inflation aim by 2.8 percentage points. There is no doubt that another cycle of loosening the monetary policy has commenced – comments expert of Employers of Poland Łukasz Kozłowski
Prognoses stating that in October the reference rate will decrease by 25 base points. The total final scope of decreases will probably amount to 11 base points, however, deeper cuts cannot be ruled out.
It is not hard to understand the motivation of the Council’s decision. We are still dealing with deflation and the GDP growth rate is slowing down. Consumption price dynamics diverge from the inflation aim by 2.8 percentage points. Monetary authorities could no longer tolerate that, particularly as if such a situation is maintained, it may have a negative influence on the condition of Polish economy.
It is worth keeping in mind that the base inflation index remains positive (+ 0.5 percent year to year in August) and the scale of the GDP growth dynamics downturn is too small to have a significant impact on the development of disinflation processes.
However, initiating another cycle of decreasing interest rates is justified. Although the Council does not have influence on many factors causing the current deflation, it should use the tools at its disposal to attempt to stop further price decrease. It appears that after the decision on interest rates was suspended in September, the Council is trying to make up ground – hence lowering the rates by as much as 50 base points at once.
Łukasz Kozłowski, expert of Employers of Poland