Poland’s central bank must evaluate how the substantial monetary easing implemented this year has affected the economy before deciding on additional interest rate cuts, although the potential for further reductions may be narrowing, said central banker Iwona Duda.
The National Bank of Poland has lowered rates six times this year, totalling a 175-basis-point reduction.
“The reductions were, of course, introduced gradually, in small steps, but at the moment we need to wait for the effects of the decisions made so far and see how they will affect the economy,” Duda said in an interview with Reuters news agency.
In December, Poland’s Monetary Policy Council reduced its key interest rate by 25 basis points to 4.00%, matching most analysts’ expectations, following lower-than-anticipated inflation in November.
Explaining the decision, National Bank of Poland Governor Adam Glapinski said the central bank is likely to adopt a wait-and-see approach before considering any additional rate cuts.
Furthermore, Duda noted that while further monetary easing is still possible, the scope for it is narrowing.
She explained that projected inflation declines and expectations of inflation stabilising at the target support rate cuts, but robust economic growth and strong consumer spending, fuelled by loose fiscal policy, constrain how much rates can be reduced.
“In my opinion, the decision on a possible further easing of monetary policy will not be made quickly, I do not think it will be next month (January),” the MPC member stated.
Duda added that factors such as anticipated rises in administrative prices, uncertainties around energy costs, and upcoming changes to the inflation basket by the statistical office could influence inflation early next year.
Moreover, the central bank will release new forecasts in March, outlining the potential inflation trajectory under the current, reduced interest rates.
“Taking into account the room for monetary policy easing, I think that the target is between 3.5% and 3.75% in the case of the main interest rate,” Duda commented.
The MPC member added that the council would remain flexible and consider additional rate cuts if inflation data suggests room to do so.
“Currently, I can say that when it comes to interest rates, we are in a very good place, and the outlook for inflation is positive,” Duda said.