Narodowy Bank Polski

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Interview with the Governor of Narodowy Bank Polski for Gazeta Polska

Apparently bankers from central banks participating in meetings of the Bank for International Settlements found out about Donald Tusk’s future in the EU structures and what conditions he should meet in order to receive a lucrative sinecure in them?

In Basel, where meetings of central banks take place regularly every two months, mainly the financial situation in the world is discussed. Of course, like in the case of meetings of other bodies, international politics is also discussed behind the scenes. And for a year or so it has been said that the task set by Brussels for Tusk is not only to overthrow the government that exists in Poland and to lead our country towards the euro area. After completing these tasks, Tusk is to return to Brussels, become head of the European Commission, and implement the accelerated construction of the European state. Only Tusk and Kristalina Georgieva, head of the International Monetary Fund, are being considered as candidates, as representatives of Central Europe.

Would she be a better candidate than the leader of Civic Platform?

Kristalina Georgieva would be a much better head of the European Commission, because she is simply friendly towards Central European countries, she is not as absolutely compliant with German policy as Tusk is. On the other hand, nobody hides the fact that her chances are slim and that it is Tusk who is to carry out the task, i.e. to dot the “i’s” and cross the “t’s” of the construction of the European state. It would then be someone from Central Europe, but at the same time mainly pursuing the imperial economic interests of Germany consisting in creating the foundations of a European state, with one finance minister, and a single fiscal policy, foreign policy, military policy etc.

So Mr Tusk’s tasks are bigger than just bringing down the current government.

He was probably promised the presidency of the European Commission in return for supporting the federal state project. The implementation of this task is to start with overthrowing the Polish government and bringing Poland into the euro area, which initially means joining the ERM II mechanism, since you cannot enter the euro area straight off the street. This entails a decline in the standard of living in Poland and abandoning the fast track to catching up with Western Europe. Then Tusk is supposed to become the president of the European Commission, entrusted with the goal of building the European state. By the way, it seems that this is in line with his genuine convictions about the desirable future for Poland and Polish citizens.

Ok, but who could make him such promises, given that Germany is in political turmoil and so is France?

Germany might be in some turmoil, but not to such a degree that it would jeopardize its basic national interests, interests which this country has pursued for several decades now. In the past the goal was to unite the German states or, practically speaking, to incorporate the GDR – a residue of the old Soviet occupation zone. Since this goal has been achieved, the objective switched to regaining in some form the control of those lands that used to belong to Germany and now form part of the Polish state, and more broadly, to subordinate the entire belt of countries between Germany and Russia. This is the German idea of balance in the future Europe. The UK’s exit from the EU opened the door to the implementation of this scenario, i.e. to the establishment of a European balance based on the cooperation of two empires – Russian and German – with countries in the middle forming part of the respective and possibly overlapping spheres of influence.

This would mean that withholding help to Ukraine on part of Germany is not an accident?

This attitude is compatible with the above-described agenda.

Russia losing the war would render the entire project moot.

Certainly. A strong and genuinely democratic Ukrainian state with its own ambitions and in alliance with the United States does not fit into this scenario. However, I would like to make one thing clear. This whole agenda does not need to be read as a result of some particularly irksome German traits, some particularly warped German national character, some sinister malevolent intentions, or anything like that. We are simply talking about the policy of a state with such an enormous economic and demographic potential that it basically does not fit into Europe as conceived by the EU’s founding fathers – with an internal balance of power, with every country having a voice and a vetoing prerogative as part of the political process, and so on and so forth. Let us note that in Brussels it is the right to veto that is under a particularly sustained attack at the moment. Various fees and taxes are being introduced in order to feed the EU’s own funds, and there are also visible efforts to make fiscal policy uniform across states. Poland is to a large extent an obstacle on this road as a sizeable country with an eye to its own prosperity and the will to preserve its independence. With a sovereign central bank, its own currency (the zloty) and a comparably strong economic growth to match, we are a problem.

Because if we did badly, they could point to us and say “look, you can go the Polish way, but this doesn’t pay off”, couldn’t they?

They could, provided that we were a country that failed in democratic governance and proved unable to determine and stay its course. But this is not the case. On the contrary, Poland is nearly a model case, which in the course of the last 30 years has achieved enormous economic success and has also coped perfectly well with the challenges arising in recent years. Moreover, it is a fully democratic country where civic awareness is high, where public institutions, both at the level of state and local government, are robust, where infrastructure is developing rapidly, with good education and social insurance systems, and so on and so forth. Presently the country is poised to build a strong and modern army. This success story is entirely unacceptable both to our western neighbour and to people who have linked their fate to its cause. People paid by the EU this way or another, all those ex-first secretaries of the Polish communist party university committees who ended up as members of leading EU parties, they have at present no stake in a positive image of our country. After all, these people were almost all part of the cadre of communist parties, who represented Russian interests in Poland and will have no qualms representing EU (read: German) interests now. And from the point of view of these interests, Poland developing as quickly as it is, is not a desirable message.

Speaking of development, what is the pace of Poland’s growth against other EU member states?

Recently, at NBP we have analysed how fast Poland is catching up with the prosperity level of Western European countries. It turned out that we are still a pretty long way behind Germany, as was to be expected, but not that far behind France, for example. France’s GDP per capita adjusted for purchasing power parity is, broadly speaking, within our reach in this decade! Keep in mind that we have already surpassed Portugal and Greece in this respect. In the coming years we will gradually close the distance to other EU countries.

Why would catching up with France of all the countries be so important to us?

I am frequently asked why the French do not fear the hypothetical European state. Well, for a few reasons. For starters, they are a large country with a sizeable population, they are also very rich culturally speaking, and on top of that they are sufficiently wealthy not to fear domination. Neither an average Frenchman nor a member of the French elite is afraid of being dominated by Germany and indeed Germany is not in a position to dominate France – neither politically, nor culturally, nor militarily. France is a nuclear power with a very strong army, which could – if it wished so – easily field an army twice or three times its current strength, because France is a global power. If we had the economic power of France, the prospect of introducing the euro would not constitute such a big threat. It would not be as harmful as at present. Of course, reaching 80 per cent of French GDP per capita is not the same as reaching 100 per cent of this figure, and even reaching 100 per cent of French GDP would not place us in the same league as France, because apart from current growth it is also the accumulated resources that count. France was not as heavily devastated by World War I and World War II as we were. In France, every urban family has enormous resources – held both domestically and abroad – in the form of cash, capital, land, houses, works of art and educational capital. Therefore, even catching up with their GDP per capita adjusted for purchasing power parity, is not the same as catching up overall. Still, reaching 80 per cent of French GDP, which I assume to be within the realm of possibility in this decade, would move us to another spot. Poland would be very different to what it is now. We would talk with the Germans from a different position, on a more equal footing. Owing to that, our mutual relations would become more rational. The ruling elites in Germany know this too.

Not only has Poland’s economic development accelerated, but also Germany’s economic development has slowed down.

Ten years ago, we could not talk about a 300,000-strong army because Poland had absolutely no resources to maintain such an army. Now, we can talk about it. In eight years’ time, Poland may be a modern country with the level of GDP per capita comparable to that of France. Poland can maintain a modern 300,000-strong army, with no outdated military hardware, but with well-trained soldiers and officers. Poland may have modern infrastructure in the whole country. We may already have nuclear power plants. Everything may look different. The present decade is of key importance for Poland. Meanwhile, they want to take away this chance (to be a modern country) now. Introducing the ERM II, which puts Poland closer to the adoption of the euro, and ousting the current government will mean that Poland’s pace of economic growth will decline and get closer to the pace of growth posted by western European countries.

How would that look in practice?

This does not mean that Poland will not get richer. It will, but at a slower rate. There will be modest growth and it will sometimes come to a halt. As a result, Poland will not close the current gap with more affluent countries so quickly. This is unfavourable for every Polish citizen, from the point of view of their prospects for wealth. Therefore, it is not only necessary to appeal to the patriotism of the Poles, but also to their purely financial interests. The liquidation of the Polish zloty, of an independent central bank, and the establishment of a government that is subordinate to the Brussels elite means that Poles are squandering the chance to fulfil their patriotic dreams. What we were dreaming of when communism began to become more market-oriented, what – after thirty years – somehow works out. So, I am also addressing this opinion to the Poles who are not very concerned about this development. After all, some Poles may think that it is worth adopting the euro in Poland, that it is worth seeking a single European state. Because in return, it seems to them that they will earn more money, be more stable and secure. That’s what they may think. But this is not the case. Then, Poland will remain significantly poorer than western Europe for a long time. Poland will always, in any case for a very long time yet, be the “inferior” country. Poles will travel to those countries to work, and not from those countries to Poland. Poland will not join the club of the five, four or even three richest European countries with the greatest potential. In my view, this is the choice. Poland must persevere, must win. Poland must keep the zloty and maintain the patriotic government to be able to sit – in ten years’ time – at the table with Germany, France, Italy and every single country as equals.

Attempts are made to offer Poland a choice: the awarding of funds from the National Recovery and Resilience Plan as long as the government is replaced. In my view, the deal is too risky even for the EU.

In my view, all the signs indicate that from the beginning it was so conceived that the funds would not be provided. They want to give the money to the next government, while building all the time a false narrative about the benefits our citizens will have from the plan. Well, if you take a closer look at the National Recovery and Resilience Plan, then a substantial amount of its funds is supposed to be earmarked for various eco-friendly projects, etc. Of course, every euro cent is very useful for Poland, and, for example, digitalization of the economy, changes in healthcare, there are a lot of positive objectives. On the other hand, it is not the case, however, that living standards will rise considerably. Although the plan includes perhaps a whole range of things that Poland wants to support, especially some investments, they will not bring a direct, very significant benefit for citizens. The benefits will be rather moderate, but for sure they will not be groundbreaking.

Has Poland made a fair balance – as the Romanian government did in the past – of EU inflows and outflows to Central European countries? It has turned out then that the balance was to the disadvantage of Central Europe.

Perhaps it is just that. But one has to remember access to a huge common market of several hundred million people. This is the tangible benefit we mainly received and it’s priceless. Without access to the market, Poland’s fast economic development would not have been possible. This is the biggest benefit. From a purely economic point of view, it pays off. In any case, when it comes to the economy itself, the benefits from joining the EU clearly prevail precisely because we have access to this market.

Poland would be fine with the Union established by its founding fathers, but this means a small rather than big UE budget. Besides, the money serves the EU bureaucracy that remains beyond the democratic election and control mechanism and is strengthening its grip.

More and more countries will support Poland, as more and more countries will be dissatisfied with paying for the EU. Let’s take note that the situation of a big country like Poland and of smaller countries like Estonia, Lithuania, Latvia or even the Czech Republic or Slovakia differ. These countries do not face such a choice. They have to be much more open and integrated, but Poland has a greater choice. Our problem is that Poland is a big country and knows that independence, sovereignty and faster development should not be abandoned. However, Poland is not big and powerful enough to be able to implement it easily. This is Poland’s historical problem since the Khmelnytsky insurrection; that Poland is stuck between these two areas to its west and east and it has to keep fighting a battle. However, when one takes a realistic and pragmatic look, Poland faces at least ten years of fast growth, which is markedly faster than, for example, that of Germany or France.

But in a hostile environment. Poland has two advantages – the United States, which has clearly shifted its policy...

...political advantages, right? Political advantages are the United States, the ongoing war which makes Poland indispensable to the Unites States, to world order and peace. Poland’s basic economic advantage is – as has been the case for years – extremely hard working and resourceful Poles...

The other advantage is the United Kingdom, because the Anglo-Saxons are increasingly active in the region.

From Poland’s point of view, the biggest problem is that the United Kingdom left the European Union, or was rather pushed out of it. However, in the territorial sense, there is a place for the Anglo-Saxons in a larger Union.

A free trade agreement between the EU and Ukraine, which will de facto be in force till 1 April 2023. This will be a critical moment; one has to be wary of it.

We need to look at what Poland can push through and what it cannot. Poland must have allies.

Poland should sign a free trade agreement with the United Kingdom, with Ukraine, but remain an EU member. At the same time, one has to open the Union to the countries that are outside it.

But Poland is not a power broker in the Union.

What does the future hold for Italy, with its severely weakened economy, in the Union?

Italy is in a very difficult economic and political situation; it is dependent on the European Central Bank, is treated in a special way. Italy can do things that other countries are not allowed to in order to overcome the situation. Italy is a sick but strong shareholder in the EU. The Italians will change nothing in this policy, although a right-wing victory in the upcoming elections is likely.

For countries such as Italy, Spain, and France expansion of the EU market is also a great opportunity.

Of course. In Italy the ruling party – at this moment almost certainly – will change to one more rational towards the EU. As for Poland, on the other hand, what will change is something within our reach and depending only on the Poles, that is the aforementioned 10 years of rapid development, clearly faster than in Germany or France, as well as the economic catching up with those countries and building a powerful, modern army of several hundred thousand professional soldiers. Then Poland will gain a completely different status.

For now, the German offer is such, that “their Poles” should be in power.

The Germans, however, think rationally – when Poland is strong they will sit with us at the table, speak like the strong to the strong, whereas when Poland is weak, they speak like the strong to the weak and demand actions that pursue their interests. At the moment, what dominates is still the sense of power, size and the dictates. Unfortunately, this is a huge, powerful nation, a huge, powerful economy. Let’s also remember that in recent times it has also been built on cheap Russian gas. At the moment its potential is as it is, and Germany wants to use this advantage to pursue the historical idea of incorporating Poland and all Central and Eastern European countries into its sphere of influence. This reappears every umpteen years in German history. They cling to this conviction about their domination, so obvious for the Germans, their being the strongest, the biggest, the most efficient, the most pragmatic, and so on. But this is no longer true. They are no longer the most pragmatic, hard-working, efficient, etc. But this way of thinking still remains.

Globally, Germany is a visible economy, but no longer a dominant one. Large economies are emerging, even in countries that until recently were very poor…

Paradoxically, the world is regressing to the situation of the 18th century, when the Chinese and Indian economies had the greatest potential. They were the ones which mainly generated the global GDP.

But large economies are also emerging in South America, and soon perhaps also in Africa.

The future is absolutely unpredictable. Assuming there is no war, as war will generally change everything. We are in a period of dynamic change, at a good point – we are not even starting, we are already running, we are running fast. In a 100-metre race we are at the 70th metre and we have to make it to the finish line.

However, as a result of the pandemic and the war in Ukraine, we have started to put our foot on the brake and in part NBP has something to do with that, that is high interest rates.

The pandemic was, and the war is to this day, a huge challenge, yet so far Poland fares extremely well economically. It is also thanks to the NBP policy. As regards our actions in recent months, we have raised interest rates to curb inflation and prevent an inflationary spiral. The Czechs and the Hungarians have done the same. Because the persistence of high inflation, even if initially caused only by external shocks, would undermine our development potential in the longer term. Therefore we need to act to bring inflation down. Currently, we are assuming that during the holiday season inflationary pressure will stabilise and will start to subside in the subsequent quarters. We hope that CPI inflation will follow suit, starting to gradually decrease. But it can be affected by a number of factors, and, as we all know, these are turbulent times.

Will it be decreasing month-on-month or year-on-year?

I think that given the numerous sources of uncertainty, there is no sense discussing such details. What is most important is that inflationary pressures are likely to gradually ease. We will possibly only reach single-digit inflation at the end of 2023. Let’s keep in mind that the exact path of inflation depends on a number of factors, including the duration of the anti-inflationary shield. The government has not yet announced it, but it is possible that the shield will stay in force until the end of next year and will only be phased out step by step. And so inflation in the last quarter of 2023 should already have fallen significantly, possibly to a level only marginally exceeding the upper band of acceptable deviation from the NBP inflation target, i.e. 3.5%.

Assuming that the most probable scenario will materialise, meaning that inflation will start falling after the holiday season in 2022 and will be close to single digits at the beginning of 2023, when might the MPC start a cycle of interest rate cuts?

Decisions on interest rates will depend of the economic situation. First, inflation will matter, including the persistence of the factors that affect it, and second, the business climate and its outlook. There will be no decision-making meeting of the MPC in August. We will therefore discuss interest rates in September and assess the situation then. If, in the following months, it turns out that the demand factors behind inflation are slowing down and the risk of pronounced economic downturn emerges, then conditions for a discussion on the possibility of interest rates cuts will appear, but for the time being this does not seem to be on the agenda any time soon. Today, the most important thing is the fight to bring inflation down, while it is also vital to support the economy, especially if it visibly weakens. Please remember that with respect to the global economy, including the European and especially the German economy, but also the Polish economy, there is talk of a risk of a slowdown or even a technical recession. For this reason, we also do not rule out the possibility that for the next two quarters of 2022 our economy will see a slight decline in GDP in quarter-on-quarter terms.

We got two powerful injections a bit unintentionally, partly as a result of coincidences that proved to be extremely stimulating for the economy. The first was a result of the huge influx of refugees from Ukraine. Although women predominate among them, they want to take up employment, they are registering and they are spending money. According to the ministry of health, the health insurance contribution that Ukrainians are paying in Poland is still higher than the expenditure on their health care even though only some of them have legally registered in labour offices.

Indeed, the majority of refugees are women. They really want very much to work and earn, they pay the ZUS social insurance contributions and they are driving consumption in Poland. However, this first stimulus – in the first weeks of their stay in Poland – was particularly strong, because they had only just arrived and needed to buy many things. Now it has stabilised, but it still has a favourable impact on our economy.

The second stimulus was the result of the mess that was created during the introduction of the Polish Deal, because it was tidied up in what was probably the only sensible way, i.e. taxes were lowered significantly. And the effect is that a lot of people are actually leaving the shadow economy. In practice this means that the current decline in unemployment is also due to a huge reduction in taxes. So a lot of people are registering and starting to pay taxes.

Please remember that the Polish economy is developing rapidly. In the first quarter of 2022 we had a GDP growth rate of 8.5% compared to the first quarter of 2021. Admittedly, the rebound of firms’ inventories made a significant contribution to this growth. But this does not in any way detract from the fact that we are developing rapidly. Of course, the labour market is tight. These tensions will to a certain extent be mitigated by the significant influx of refugees from Ukraine, mainly women, who have found work in Poland, but this is still not enough compared to what is needed. In such a situation, wages have been clearly growing all the time since the beginning of the year, yet wage growth in the entire economy is slower than price growth. However, it is necessary to remember that this does not concern everyone to the same extent. In some cases wages have not risen, or have risen much slower. But in other cases wages have risen faster than inflation. This is precisely one of the reasons why elevated inflation is a harmful phenomenon, because it changes economic structures and prevents companies from being able to plan their profits and earnings.

So you could say that Poland has received two strong economic stimuli which, despite the global crisis, are helping us, giving a chance for our economy to avoid a slowdown. But how does this affect the value of our currency? Because on the one hand, for our exports a low value of the Polish zloty is very favourable. But taking into account the fact that at the same time gas and oil have become more expensive, this has increased the prices of important products that we import.

Firstly, in the public debate, the word “crisis” is widely used. Meanwhile, we are not dealing with any crisis. Crisis means a situation when GDP is plainly decreasing, as well as the purchasing power of the population, when firms are going bankrupt etc. However, at the moment there is rather a slowdown with a still very strong labour market. On the other hand, we are currently dealing with the problem of elevated inflation. However, it is not super- or hyperinflation. It is inflation, it is double-digit, and therefore very high – painful and harmful; it must be overcome as quickly as possible. But it is not a crisis. On the other hand, our economy is slowing down. So far, however, in the first half of the year the GDP growth rate was still robust and certainly significantly higher than in the West.

So it also means that we would have to have GDP growth at the level of 0% in the third and fourth quarters of 2022 for the growth rate to fall to an average of 4%?

We’ll see how it’ll be at the end of the year. In any case, we are not currently dealing with an economic crisis. Of course, it can never be completely ruled out that a crisis will occur in a country, however, not in Poland. There is no basis for this.

However, it can be said that we were better prepared for the last crises related to the coronavirus and the war in Ukraine. For example, we weren’t dependent on external supplies of energy commodities to the same extent as other EU countries.

Yes, of course. We are not living on credit. The Polish economy is only slightly indebted abroad, and besides this, it is balanced – there are no such problems as, for example, in the case of the Italian economy. We have no imbalances on any markets, although, of course, the consequences of the war are a challenge, including the situation in the commodities market. However, for many years we have prepared for a reduction in gas supply from Russia, which for many countries came as a shock. We are also a large producer and exporter of food and in this respect we are self-sufficient.

And what about the exchange rate of our currency?

Thanks to the fact that we have our own currency, the Polish zloty remains our main safety valve in the event of crisis phenomena. When we enter a period of worse economic conditions, it affects the zloty exchange rate and not unemployment. Meanwhile, other economies, deprived of their own currency, respond to such a situation with a rise in unemployment. This applies, for example, to Lithuania, Latvia and Estonia which, due to the adoption of the euro, no longer have their own currency nor the possibility to adjust domestic interest rates. At the same time, the value of the Polish zloty may sometimes rise, sometimes fall – in this way we respond to fluctuations in the economic conditions. In the case of their deterioration, the zloty weakens, but at the same time the competitiveness of our economy, and therefore our exports, increases. But then we go in the opposite direction; however, we do not respond with unemployment and bankruptcies. That would be the worst thing – every experienced economist will confirm that, as well as every Polish patriot. Unemployment destroys the basic social fabric, it demoralises families.

Can we say something more about the financing of the Polish army by NBP, because the profits of NBP alone are probably too small to implement these plans?

Of course, sometimes there is a profit, sometimes there is none. We should remember that we only partly influence what the profit will be when we manage our resources and reserves. The profit also partly depends on what the zloty exchange rate will be. This is unpredictable in view of the external shocks that influence it. On the other hand, it is difficult to imagine financing state expenditure at the level of hundreds of billions of zlotys without a secure, solid foundation, which is NBP, which always secures the whole system of the functioning of the market for the bonds that the state will issue. Of course, private banks consortiums of private banks, and we hope, also foreign banks will buy these bonds. But it is NBP that is at the heart of the security of this system and stability of this market. If NBP refused to play this role, the whole programme would collapse. If there is something that the Russians care about, and the Germans care a little about, it is for Poland’s armaments programme to collapse, and one of the conditions for such a turn of events would be the liquidation of the independence of the central bank and the withdrawal of its cooperation with the government in this regard.

Can we say something more about the financing of the Polish army? Are we thinking of special purpose defence bonds or about the possibility of increasing the debt by issuing bonds?

That is the task of the government, it is the government that must finance this extraordinary defence spending. In the coming years we face huge expenses. We are talking about hundreds of billions of zlotys. We are buying the latest equipment, cutting edge technology, because our situation requires it. This expenditure will be financed mainly from the state budget, which is currently in a very sound state. In the case of military expenditure in particular, budget financing is the most effective and the cheapest method. Of course, other sources of financing, which were provided for in the Act on the defence of the Homeland, cannot be ruled out, but they will rather play a supporting role. The most important thing is that the Polish economy and public finances are strong enough for us to bear this additional burden without compromising economic growth and the living standards of Poles. At this moment in time, Poland is so wealthy, so strong, that we do not have to resort to any extraordinary solutions, we do not have to ask our citizens to make an extraordinary financial effort.

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 2022-09-26
1 EUR4.7566
1 USD4.9113
1 CHF4.9846
1 GBP5.2822
100 JPY3.4146

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Narodowy Bank Polski
Świętokrzyska 11/21
00-919 Warszawa
Poland

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