Narodowy Bank Polski

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Interview with the Governor of Narodowy Bank Polski for Business Insider

Are you still ”a hawk at the head of the hawks”?

I have always been a pragmatist. Although I have specific economic views and, I have repeatedly said, I have been a follower of Joseph Schumpeter’s thought. So I have non-standards views. I think that we have liberalism, socialism, statism, conservatism and Schumpeterism. My approach to economics is pragmatic. The central bank is the antithesis of a free market. It was created in order to control and regulate the area of money and credit. The central bank is to contribute to sustainable development.

And not to price stability and the value of money?

Sustainable development is also a development without inflation, or as is nowadays believed, development with inflation in the range of 2-2.5 per cent in the medium term in developed countries. Therefore, we have a medium-term inflation target, adjusted to a converging economy, at the level of 2.5 per cent +/- 1 percentage point. Amid an energy crisis, in the time of war, which Poland has been somehow drawn into, one has to put aside certain theories and behave in a pragmatic way. Therefore, I am neither a hawk nor a dove. I am willing to support a fast monetary tightening and interest rate hike policy, when needed, but also a policy of reducing the cost of money, if the situation so permits.

We have seen interest rates increased for 10 months in a row. Is the rate-hike cycle drawing to a close?

We are undoubtedly in a difficult moment and close to a turning point. We have to be sure, as NBP and the Monetary Policy Council, that with no other unexpected factors, like a new war, a global crisis, a pandemic or the Russian troops approaching Poland’s borders, inflation will no longer grow. We may be in such a point or be close to it, but we still do not know for sure. Inflation may even grow insignificantly in August. At the beginning of 2023, we can experience another bigger growth primarily due to regulated prices of electricity, gas and heating. However, after the summer holidays inflation should be in the downward trend. This means that as the MPC we have to choose the moment when we bring the interest rate-hike cycle to a halt. Well, it is fortunate that there has been no Council’s decision-making meeting in August, because we would have split opinions. In September, we will receive new data and then the MPC will decide whether to raise interest rates again or to stop the cycle.

In your opinion, what variants of the MPC decisions may emerge at its meeting in September?

As I have already made it known, a scenario may arise from the discussion of the MPC where we raise interest rates once again by 25 bps or twice by 25 bps. However, it cannot be ruled out that, for the time being, we end interest rate hikes, but at the same time we are not blocked and do not announce the end of the rate-hike cycle. We act in a pragmatic way. The 25 basis points hike itself would signal that we are tapping brakes on rate hikes, but we are looking into the situation and are not sure when we will say: it’s time to end the cycle. Especially that we expect inflation to be back at an elevated level in January 2023. At the same time, we do not know what the government will do, as far as shielding solutions are concerned, or what Energy Regulatory Office (URE) tariffs will be. Contrary to what is publicly said, I am not in permanent touch with the government. However, even if – due to regulated prices – at the beginning of 2023 inflation is back at a higher level, this will not change the nature of price developments.

So this will not be a factor requiring response in the form of new interest rate hikes?

Correct, because we will not be able to impact it with monetary policy. For me and the MPC, the situation would be clear if inflation came to a halt in the summer holidays and then started to fall. In such a situation, we would not increase interest rates further. On the other hand, I assume that the situation will not be that comfortable. What comes into play is the scenario where we decide to slightly increase rates in September and announce a pause in the cycle, but we do not declare an end to the cycle. It is also possible that the MPC will take no action with the rates in September, but will also not declare an end of the rate hikes. I cannot prejudge what will happen, because after all Council members have always differences of opinion. From my point of view, I would like the following scenario to materialize, and I believe that it will be so: there will be a small interest rate increase in September or we will no longer do anything, and then we are observing how the inflation index is falling slightly in subsequent months. But I think that an interest rate decrease is likely in the fourth quarter of 2023.

What inflationary scenario will you foresee for the upcoming quarters?

Our latest short-term forecasts, which are quite often updated, show that an only slight decrease in inflation may be expected this year; at the end of the year inflation may amount to around 14 per cent. According to economic estimates, in the scenario assuming that the anti-inflation shields will be kept in place till the end of 2024, and with the assumption that there will be no higher tariffs on electricity, natural gas and heat energy, in mid-2023 we will see inflation at 5.8 per cent, and at the end of 2023 – at 2.9 per cent. With the assumptions adopted, in such a variant the average annual inflation in 2023 will amount to 6.8 per cent and in 2024 – to 4.1 per cent. However, changes in the URE tariffs or modifications or a withdrawal, in part, of the anti-inflation shields would very strongly affect inflation in the future. We are not able to foresee it. NBP analysts estimate that a withdrawal of the anti-inflation shield within the one-year horizon would bring inflation up by 4 percentage points. On the other hand, an increase in tariffs on electricity, natural gas and heat energy by 30 per cent, 50 per cent and 65 per cent, respectively, would cause inflation to rise by 3 percentage points. Also we do not know what will ultimately happen to regulated prices, how they will impact inflation at the beginning of 2023. I assume that towards the end of 2023 we will see a one-digit inflation in the range of 5.5-7.5 per cent and towards the end of 2024 – it will be in the NBP inflation target of around 3.5 per cent. If so happens, it does not make sense to stifle the economy with high interest rates. Let me say it again, under present conditions it is assumed that there is no growth in regulated prices. This growth will have to be factored in later.

The URE tariffs are factors beyond NBP’s control or the impact of interest rate policy. What about internal, demand-driven factors which affect price growth?

Perhaps the current level of the NBP main interest rate, i.e. 6.5 per cent, which may yet rise to 7 per cent, is a sufficient barrier to the internal inflation-fuelling factors. For sure, this is the level [of interest rates] which has already led to a sharp reduction in mortgage or consumer loans. We impact other credit segments, e.g. corporate loans, to a lesser degree. If inflation drops quarter on quarter, then at the end of 2023 there will be room to cut interest rates and lighten the burden of those 230,000 borrowers who took out a zloty-denominated mortgage credit when interest rates were at their record lows.

Do you foresee a recession in Poland understood as a GDP drop year-on-year? We are probably not able to avoid a technical recession, that is a GDP decline quarter-on-quarter for the next two quarters.

NBP does not foresee a year-on-year recession. Even if we have a so-called technical recession, a strong slowdown of GDP growth, we do not expect unemployment to increase abruptly. But we do not want to stifle the economy with too high interest rates kept for too long. Nonetheless, I will not state today that we will stop the main interest rate at 6.5 per cent, or perhaps we will have two 25 basis points hikes. The MPC will take decisions in due time.

Have credit holidays complicated the situation in the context of fighting inflation? After all, they are the equivalent to an interest rate cut.

Credit holidays certainly act in the opposite direction than interest rate hikes. However, I am a pragmatist and understand the situation faced by the government. Once it was said that the optimal policy mix is when monetary policy and fiscal policy act in the same direction. Now we often have an opposite situation, and not only in Poland. Yet the government sees such areas where – for social reasons – too restrictive a policy cannot be pursued. For me it is absolutely clear, though in its official statement NBP has indicated that credit holidays should be offered only to those borrowers who have a real problem with mortgage loan repayment.

Is the issue of the zloty exchange rate important to the MPC today, or is a weak zloty not a problem for the central bank?

The reason why we have a free zloty, our own non-regulated, market-driven currency, is to have a free-floating exchange rate. It is a buffer for the economy. In countries with no free-floating exchange rate, in the event of various crises it is unemployment and corporate bankruptcy that act as a buffer for the economy. In the case of Poland, it is the exchange rate which reacts to changing economic conditions. Now everyone is waiting for the Fed’s decision, probably for the next interest rate rise. This impacts the depreciation of the zloty to a larger extent than the fact that there is a war near Poland’s border.

So the NBP Governor does not lose sleep over the zloty exchange rate?

No. I treat exchange rate fluctuations as a natural buffer for the Polish economy.

Why do you interfere in day-to-day politics? Or engage in discussions with the opposition parties, threaten people with Donald Tusk and the will to drag Poland into the euro area by force.

The euro is an extremely important economic issue, which is fundamentally related to the activity of the central bank.

Only that in Poland it is a dead issue. On the one hand, we do not meet the economic convergence criteria and, on the other hand, there is currently no parliamentary majority required to amend the Constitution. On top of that, you, as the NBP Governor, are against Poland’s entry of the euro area, and without the central bank this process cannot go on.

That is why I was attacked, so that I would not be elected the NBP Governor for a second term. People don’t know that without changing the NBP Governor, without removing me from office, it is not possible to enter the ERM II mechanism and next adopt the euro. Germany wants to build a strongly integrated EU, a federal European state under its leadership. Poland is a big and important country, which stands in the way of the federalisation of Europe. If Poland bows to the pressure, the whole Central Europe will follow suit. This is a political aspect. A country’s own currency is an element of its independence, yet economic arguments are extremely important. By adopting the euro, Poland will not plunge into poverty, but will begin to grow at a slower pace. By keeping the zloty, we have a chance of reaching the level close of France in this decade; of course speaking of GDP per capita in terms of purchasing power parity and not in terms of wealth, because in France this has been accumulated over centuries, so we won’t be able to make up for it.

However, an argument was raised that your public statements on the euro are in breach of Article 227 para. 4 of the Constitution, which says that ”The NBP Governor shall not belong to a political party, a trade union nor perform public activities incompatible with the dignity of his office”.

It’s a false argument. The euro is a key issue for the central bank. It concerns the very essence of NBP’s activity. After the euro area accession, NBP would de facto become an analytical centre and would transfer the conduct of monetary policy to the ECB. Few people know that when I assumed office of the NBP Governor in 2016, I saw in our central bank the euro symbol-shaped door handles, and I immediately ordered the removal of them. Back then it was a common belief that Poland will soon be in the euro area. I do realise that if there is a political will, all firm rules no longer apply. If this is what Germany wants, and the Polish government and the NBP Governor accept decisions taken in Berlin, Poland will join the euro area rapidly. The convergence criteria will not matter that much.

The profit of NBP is to be one of the sources of funding the development and modernisation of the Polish army. Does that mean that the central bank will focus on generating the highest possible financial result every year?

The primary aim of NBP is not to generate a profit, but to ensure price stability. Moreover, a profit depends on a number of factors and market conditions, including the prices of Treasury bonds on international markets, zloty exchange rates, etc. When NBP generates a positive financial result, then the Act on NBP specifies how this profit should be allocated. As to the Armed Forces Support Fund in BGK, it will issue bonds to finance expenses related to the army, but it can also be supplied from the State budget.
If financing with bonds issues is significant, then both Polish and foreign investors will buy the bonds. On the other hand, the central bank will do its utmost to ensure an efficient functioning of the market, which is obviously very important.

NBP interest rates

Reference rate 6.75
Lombard rate 7.25
Deposit rate 6.25
Rediscount rate 6.80
Discount rate 6.85

Exchange rates

Table of 2022-09-23
1 EUR4.7591
1 USD4.8796
1 CHF4.9701
1 GBP5.4530
100 JPY3.4151

Economic outlook

Monthly data

Quarterly data

Financial markets



Narodowy Bank Polski
Świętokrzyska 11/21
00-919 Warszawa

+48 22 185 10 00
NIP: 525-000-81-98
REGON: 000002223
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