2023-09-06 20:30:36
Poland’s central bank cut its main interest rate by 75 basis points to 6.00% on Wednesday, in a shock move ahead of October’s election that sent the zloty tumbling against the euro.
A narrow majority of analysts polled by Archyde.com had expected a 25 basis point cut, but markets and economists were taken aback by the extent of the easing. The zloty plunged 1.5% to its lowest level since May and bank stocks fell more than 5%.
The National Bank of Poland (NBP) said it made the decision because it expects inflation to return to its target level faster than expected.
“According to the Board’s assessment, the data recently received indicates weaker than expected demand pressure, which will contribute to a faster return of inflation to the NBP inflation target,” he said. she said in a statement.
She added that the interest rate adjustment would be “conducive to achieving the NBP’s medium-term inflation target.”
NBP Governor Adam Glapinski previously indicated that a rate cut could take place in September if inflation falls into single digits.
Although inflation continued to decline in August, it remained slightly below this target, standing at 10.1%, according to a flash estimate.
Economists lined up to warn of the inflationary risks of such a drastic change in monetary policy.
“We have already said that it is too early for a rate cut, and certainly such an aggressive cut, while the prospects for (a slowdown) in inflation are still distant,” said Piotr Bielski, director of the department of inflation. economic analysis of Santander Bank Polska.
“I think the market will price in the risk of inflation taking root and generally that will make it difficult for inflation to return to target.
JP Morgan analysts said in a note that it was appropriate for central banks to be cautious, given the significant uncertainty about the outlook for inflation in this cycle, not only in Poland but also around the world. .
“If reducing rates at this point was questionable, reducing the magnitude is even more so,” they wrote.
Wojciech Paczos, an economist at Cardiff University, said the decision could have been influenced by political considerations, with parliamentary elections scheduled for October 15.
“I believe there is a risk of a reversal in the trend and further increases in inflation, as well as a risk of reversing this decision after the election and returning to interest rate hikes” , he wrote on X, formerly known as Twitter. “I consider this to be a one hundred percent political decision, not dictated by economic logic.
Mr Glapinski is an ally of the ruling Law and Justice (PiS) party, whose ties to its leader Jaroslaw Kaczynski go back decades.
“The Monetary Policy Council takes its decisions independently of the government. The composition of the council is varied and it is elected by various public institutions. The government has no say in the decisions of the Council. Critics’ claims are therefore unfounded,” the government spokesman said.
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