Interest rate cut due to falling inflation, slower economy says NBP head

Poland sees inflation declining faster than expected and the economy growing below estimates so the interest rates have been adjusted, Adam Glapiński, governor of the central bank (NBP) told a press conference following a surprising interest rate cut to 6 percent.

"Poland had met previously-assumed conditions for an interest rate cut, namely reaching single-digit inflation and an estimated fast decrease of inflation in the coming quarters," Glapiński said on Thursday, a day after the Monetary Policy Council cut the reference interest rate by 75 basis points to 6 percent, taking the market by surprise.

Glapiński added that currently inflation is at 9.6 percent and is expected to fall to 8.5 percent at end-September, 7.4 percent in October, and to 6-7 percent by year-end.

"We have just left the territory of high inflation and entered the level of mild inflation below 10 percent and (hopefully - PAP) we will be heading towards the creeping inflation of 5 percent or less," the NBP chief said.

However, he admitted that coming down from 5-percent inflation may prove difficult as globally some expect that inflation at this level may be persistent.

Glapiński said that projections of some banks see Poland's CPI approaching the upper end of the target range of inflation, which is 2.5 percent plus/minus one percentage point, in mid-2024, while the central bank's projection sees it happening in 2025.

The governor announced that the NBP's new projection is to be released in November and in this document all data will be verified.

"Today's reference interest rate of 6.00 percent amid 9.6-percent inflation is stronger than the previous rate of 6.75 percent applied when the inflation stood at 18.4 percent," he said.

When referring to the MPC decision to cut rates by 0.75 percent, to the general surprise of economists, he said that it is hard to expect delight from banking analysts of foreign banks when the country is cutting rates, as high interest rates are beneficial to banks.

Apart from a faster decline in inflation, the MPC saw slower growth than expected, Glapiński said, adding that now Poland's GDP growth in 2023 is expected to be weaker than previous estimates, even at the level of 0 percent.

Glapiński also acknowledged the recent depreciation of the Polish zloty following the MPC decision to cut rates, but he saw a 2-percent depreciation as having no imminent impact on inflation. Still, he expressed hope that the PLN will stabilise at a level reflecting Poland's economic fundamentals, as a strong zloty helps fight inflation.

When asked about the MPC's future decisions, he said that he was going to follow the stance presented by the ECB chief, Christine Lagarde, who declares nothing about the future apart from following developments and taking decisions accordingly. Soon all central bankers will meet in Basel to discuss their monetary policies.

Nevertheless, he said, once inflation is confirmed to be declining swiftly towards 5 percent and lower, interest rate cuts will follow.

"A 75-bps cut is a deep adjustment, and further down the road we will be acting according to our assessment of the situation," Glapiński said.