Price stability and macroeconomic equilibrium
Monetary Policy Council at the end of its six-year term of office
In the past six years, average inflation in Poland has amounted to 1.8%, a level conforming with NBP’s medium-term inflation target (2.5% ±1 percentage point). The outgoing Monetary Policy Council has pursued – in similarity to the previous MPCs and most central banks in developed countries – the inflation targeting strategy. Due to the impact of the global financial crisis, the collapse in the euro area economic activity and major shocks in the commodity markets, the Council implemented this policy in a flexible manner, allowing temporary deviations of price growth from the inflation target. A monetary policy implemented in this manner ensured long-term price stability in the Polish economy, while at the same time supporting macroeconomic equilibrium and financial system stability.
"It is a success of NBP and all the Monetary Policy Councils to date that inflation in Poland has for years been stable and low: it has no adverse effect on macroeconomic processes, and the public need not bother about the problem of price growth in their daily lives. Thus, the Council meets its ultimate goal, i.e. ensuring price stability," said Professor Marek Belka, NBP President.
During a conference held at the NBP main office on 15 December 2015, the Monetary Policy Council of the third term summed up the six years of their activity. The MPC has existed in Poland since 1998, i.e. for 18 years. It comprises the NBP President and nine members, each three of whom are elected by the Parliament, the Senate and the President of the Republic, respectively. Most of the current members' term of office expires at the beginning of 2016.
The Councils of all the three terms have pursued the inflation targeting strategy, with the inflation target set, since 2004, at 2.5% ± 1 percentage point. Worldwide experience shows that such a strategy has proved to be the most effective way to ensure long-term price stability, also in the case of the so-called emerging markets. In Poland, it has additionally enabled the central bank to support economic growth. The occurrence of external price shocks, affecting mainly commodity prices, required a flexible application of the strategy. The MPC has accepted deviations of inflation from the target under such circumstances, provided that this was conducive to the maintenance of macroeconomic equilibrium and financial system stability.
In the past six years, average inflation in Poland has amounted to 1.8%, a level conforming with NBP’s medium-term inflation target of 2.5% ±1 percentage point, albeit lower than during the previous Council's term of office (i.e. in 2004-2010, when average inflation stood at 2.8%). Lower average inflation during the current Council's term has resulted primarily from slower growth in energy and food prices, i.e. factors outside the direct influence of the domestic monetary policy. This is corroborated by the virtually unchanged level of underlying inflation net of food and energy prices during the MPC’s 2nd and 3rd term of office (in the 3rd term of office, core inflation has amounted to 1.4%, i.e. a mere 0.1 percentage point less than in the second MPC term, when it was running at 1.5%).
In 2010-2015, the MPC has had to address many factors posing hurdles to monetary policy conduct, such as commodity shocks, a prolonged slowdown in global economic growth, highly expansionary monetary policy of the main central banks and multiple geopolitical tensions. It has to be emphasised that under these difficult circumstances, the MPC pursued a policy strictly in line with the inflation targeting strategy, in contrast to other major central banks, which were forced to resort to unconventional monetary policy instruments.
"During the current Council's term of office, the euro area, our main trading partner, has struggled with the greatest crisis since its creation. The debt crisis and meltdowns in the banking systems of many EU countries have put the integrity of the currency union in doubt. Economic activity in the euro area has been, for the most part, recessionary or stagnant. A war has broken out beyond Poland's eastern border. Sanctions have been introduced, trade with Russia and Ukraine has tumbled. Moreover, a relatively sharp monetary stimulus has been launched across the world, resulting in heightened capital flows, which today are the source of risk in many emerging economies and cause sharp fluctuations in the currencies of those countries. Finally, commodity prices first were at record high levels for a few years, to slump at present. Despite all these shocks, Poland has succeeded in preserving money stability and economic equilibrium," said Professor Marek Belka, NBP President.
Although due to sharp demand shocks, inflation volatility has been elevated in 2010-2015, economic growth volatility has been successfully contained at low levels, amidst the weaker zloty exchange rate fluctuations than during the previous MPC term. Furthermore, the Polish economy is one of the few in the European Union which is not experiencing macroeconomic imbalances and can boast a stable financial system.
Although the condition of the Polish economy is sound and stable, the future MPCs will face several challenges, such as: the need to ensure an effective coordination of its activities with macroprudential policy; maintenance of the macroeconomic equilibrium under permanently low inflation and a depressed GDP growth rate across the world.