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The National Bank of Poland surprised markets with a sharp cut to its benchmark interest rate on Wednesday, changing monetary policy ahead of other central banks and ahead of a contested national election.
Rate setters cut borrowing costs to 6% from 6.75%. Analysts had expected a rate cut before the vote next month, but most expected a 0.25 percentage point cut as Polish inflation remained in double digits and well above the EU average.
Some economists have warned that the central bank, led by Governor Adam Glapiński, is being unduly influenced by the goals of the ruling Law and Justice party (PiS), which is seeking a sixth consecutive parliamentary election after Oct. 15 parliamentary elections. Three terms.
However, Bartosz Sawicki, a market analyst at brokerage Conotoxia, said the magnitude of Wednesday’s rate cut was “shocking” because it was also not in line with Glapiński’s own guidelines for gradual monetary easing once inflation falls below 10 percent. The Polish zloty fell nearly 2 percent against the euro after the rate cut was announced.
Consumer prices rose 10.1% in August despite a sharp drop in Polish inflation in recent months. Economists are also concerned that core price pressures – which discount changes in volatile items such as food and energy and are seen as a better gauge of underlying inflation – remain high.
Savage predicted that the Czech Republic and other central banks in the region could also cut rates in the fourth quarter, but “in a more cautious manner”.
Jakub Borowski, chief economist for Poland at Crédit Agricole, said rate setters in Poland had “chosen an aggressive monetary policy”. “In our view, the economic situation in Poland has not deteriorated sharply in recent months, so there is no reason for a large one-off rate cut.”
Grabinski, 73, was appointed to the bank’s monetary policy committee in 2010 and has a longstanding personal relationship with party leader Jarosław Kaczyński. He has the support of a majority of council members.
The rate cut could help Polish companies that have struggled to repay their borrowing costs since autumn 2021, when Poland’s central bank was among the first to raise rates.
In a statement after the rate-setter’s decision, the central bank highlighted the weakness of the Polish economy in the second quarter due to lower consumption and lower producer prices, which also raised the possibility that inflation will continue to fall in the second quarter sex. the next few quarters.
Erste Bank said in a research note that Poland “six months ahead of market expectations”. After the sharp rate cut, Erste said that no further changes in Polish interest rates are expected until the end of the year, with further cuts likely in the first quarter of 2024.
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