MNI INTERVIEW: Pay, Prices Argue Against Cuts - NBP's Tyrowicz
MNI (LONDON) - The National Bank of Poland should keep policy tight this year, Monetary Policy Council Member Joanna Tyrowicz told MNI, dismissing concerns that a potentially stronger zloty could pressure exporters.
Tyrowicz said that while there was a risk that tight policy could set the NBP at odds with key central banks, strengthening the currency at a time when Poland’s export-oriented economy is subject to weak external demand, this was unlikely to have a big impact on domestic activity.
“We know empirically that our exporters are not very sensitive to the exchange rate, but they are affected by the business cycle of our main trading partners,” she said.
“Recovery in the eurozone, in particular Germany, is instrumental for the outlooks of our manufacturing. Admittedly, stronger demand from our main trading partners will amplify labour market pressures.”
The NBP held its reference rate at 5.75% for the fifteenth consecutive month this week, with energy price rises and increases in excise duties and administered services prices again cited as driving inflation - at 4.7% in November and December - “markedly” above target. (See MNI EM NBP WATCH: Rates Held At 5.75%, Trump Risk Highlighted)
While the phasing out of energy subsidies will have a quantitatively large impact on CPI, the primary challenges lie elsewhere, said Tyrowicz, a prominent hawk and a vocal critic of Governor Adam Glapinski.
“We have very strong demand in market services, with inflation in this segment of the consumption basket substantially in excess of 6%."
“High growth of prices in services is indicative of high tolerance for price hikes among consumers. Wage growth is remarkably high and continues for an extended period of time, unprecedented since 1989. While these trends are somewhat declining in 2024 as compared to 2023, the pace of the decline is indeed slow.” (See MNI EM INTERVIEW: NBP Will Cut Before 2026 - Ex-FinMin Official)
CREDIBILITY LACKING
But the bank's recent hawkish pivot lacks credibility amid a failure to take responsibility for raising rates insufficiently in autumn 2022, then cutting prematurely in autumn 2023, said Tyrowicz.
The decision to exclude the phasing out of energy support measures and to overlook the impact of excise regime changes from its projections goes some way to explaining why inflation appears to have caught Glapinski off-guard in recent months, she said.
“Throughout 2022 and 2023 the staff was expected to assume in projections that the energy subsidies and other programmes would continue until the end of forecast horizons. Although in each case the laws had clear expiry dates, the staff was forced to prepare projections under the assumption as if they did not,” said Tyrowicz.
“As of 2024, as the programmes began to be phased out, these assumptions were no longer tenable. Eventually CPI reflects the actual adjustment in energy prices and baseline tax rates. The MPC should have taken precautions.” (See MNI EM INTERVIEW: NBP Rate Cut Talk Premature - MPC's Tyrowicz)
Glapinski’s arguments for his current hawkish stance are not evidence-based, though strong wage growth and the slow decline of services prices merit a tight stance to keep inflation in check, Tyrowicz said.
“The press conferences after the MPC meetings are disingenuous,” she said, “As a central bank, we have been misleading the stakeholders in official communication for a long time.”
That the governor should even mention excise on tobacco is “beyond ridiculous,” Tyrowicz added. “The fact of the matter is that we didn't do our job, and now it's hard to hide it anymore."