MNI INTERVIEW: NBP Likely To Hold Rates In 2024 - Dabrowski

Strong wage and energy price inflation will not jeopardise the National Bank of Poland’s progress towards hitting its 2.5% CPI inflation target sustainably over the medium-term, Monetary Policy Council member Ireneusz Dabrowski told MNI, adding that rates were most likely to remain on hold for at least the remainder of 2024 though a hike cannot be ruled out.

A reduction in the base rate from its current 5.75% is the “least probable scenario in 2024,” Dabrowski said in response to written questions. The most probable scenario is “wait and see,” with Council members committed to a data-dependent approach in coming months. (See MNI EM NBP WATCH: Rates Left Unchanged, Uncertainty "Substantial")

Rate hikes cannot be ruled out, he said.

“As long as inflation does not sustainably return to the target, any option is possible, including a rate hike.”

Wage growth means core inflation - which fell from 4.1% in April to 3.8% in May - may remain above headline for some time, however Poland’s negative output gap should support the disinflationary process, he said.

“Our main concern seems to be high wage growth in the economy, also stemming from large wage increases in the public sector, that outpaces labor productivity growth. At the same time, high real wage growth may further boost economic recovery. Obviously, in this environment core inflation may remain stickier going forward. However, our monetary policy together with negative output are expected to bring core inflation down gradually.”

Planned energy price increases from July this year will “clearly” lead to higher inflation, he said, but their direct impact on CPI will last only 12 months.

“In my opinion the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term,” Dabrowski said. 

OTHER INSTRUMENTS

While fellow MPC member Ludwik Kotecki has suggested in a recent interview that unnamed monetary policy instruments other than rates could be used to tighten further if needed, Dabrowski pointed out that the list of monetary policy instruments is enumerated in the Monetary Policy Guidelines that the MPC adopts each year.

"As we always state, monetary policy instruments may be used in a flexible manner, as this is conducive to effective functioning of the transmission mechanism as well as macroeconomic and financial stability. The MPC has not been considering any clandestine tools to tighten policy," he said.

The NBP sees Poland’s potential GDP growth rate at 3.0% this year, 3.4% in 2025 and 3.5% in 2026, with projections taking into account expected labour market developments, including those on its supply side, Dabrowski said.

“The Polish economy is flexible and well diversified, so changes in the labor supply should not jeopardise growth, especially over the longer term. Clearly, in the years to come, challenges to the labour supply in Poland will stem from ageing, although so far they have been mitigated by an inflow of refugees and immigrants, especially from Ukraine.”

ZLOTY

Having strengthened against the euro in recent months, further zloty gains should contribute to lowering inflation, Dabrowski said. But exchange-rate pass-through and import prices are “not critical” for domestic inflation, and will not be decisive when deciding whether or not to cut rates in the first quarter of 2025.

Asked whether the Council had recently been made aware of the timing of the appearance of NBP governor Adam Glapinski before a state tribunal to face claims - which he has denied - of breaking constitutional rules, Dabrowski said it would be inappropriate for an MPC member to comment on “political actions.” (See MNI EM INTERVIEW: NBP Should Hold Rates, Keep Out Of Politics)

But, he added, “the legal arguments behind allegations laid against the Governor are totally unfounded. Central bank independence, manifested among others by safeguarding the Governor’s tenure, is a cornerstone of macroeconomic and inflation stability and any attempts to undermine it are irresponsible. Attacking the NBP Governor will harm Poland’s credibility and will compromise trust in the country’s institutional setup.