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The MPC is considering raising interest rates if inflation does not fall to 2,5%
RPP waits for the November inflation projection
The Monetary Policy Council is holding off on a decision until November, when it will see a new inflation projection. That document is expected to show whether CPI will return close to 2.5 percent at the end of 2027 or at the start of 2028. If not, an application for a 25 bp rate hike will be necessary, in Ludwik Kotecki’s view.
The MPC member said the council cannot afford to stay inactive when inflation exceeds the allowed band around the target either persistently or too often. In his view, the November projection will be crucial because it will show whether the current calm can still be maintained or whether action will be needed now.
Kotecki said he currently sees two scenarios. If the projection points to inflation returning to around 2.5 percent in 2027 or at the start of 2028, the MPC may hold off on any move in November. But if such a return is not visible, a 25 bp hike should be, in his assessment, obvious.
In October, council members were, in his view, clearly more hawkish, meaning more inclined toward tighter monetary policy, than a month earlier. Even so, the MPC was not ready to raise rates. Kotecki added that September inflation at 4 percent made an impression, but the introduction of CPN somewhat calmed sentiment.
At the same time, he stressed that inflation staying outside the target for too long is dangerous. In his view, the balance of risks for CPI is clearly tilted to the upside, and among the threats he mentioned administered and regulated prices, which could lift inflation from January, as well as a possible end to the low pace of price changes in food markets worldwide.
Kotecki also pointed to risks tied to PPI at home and abroad, inflation in China, inflation in the euro area, food on global markets and fertilizers. For now, he still does not see second-round effects from energy prices in Poland, but he noted that the council must protect its credibility and react when inflation’s deviation from target becomes persistent or frequent.
In his opinion, the CPN program lowers inflation only until the end of this year. Without it, the problem of 4-percent inflation would reappear at the start of next year. He also added that the longer fuel prices remain high and the conflict in the Middle East continues, the greater the chance they will feed more broadly into prices in the domestic economy.
Fiscal policy does not dominate monetary policy
Kotecki also said the fiscal situation matters for the MPC, but public finances alone do not have a very strong impact on inflation. Speaking at the conference “The Cost of Fiscal Imbalance. The Impact of Public Finances on the Stability of the Banking Sector and the Economic Development of Poland,” he said there is still no sign of fiscal dominance in monetary policy.
According to him, fiscal and monetary policy are two separate areas that need to respond to each other, but that does not mean one is fully subordinated to the other. The MPC pays attention to public finances, as can be seen in its post-meeting statements, but that is not the only or decisive factor when setting interest rates.
The council member also said that when deficits and inflation are compared, there is no simple link pointing to higher inflation. In Poland, the opposite has sometimes been true recently. In his view, this shows that public finances do not affect CPI automatically and that the MPC makes decisions based on many data points at once.
Kotecki stressed that the council’s mandate is clear: low and stable inflation. That is why the MPC looks at all the variables emerging in the economy and shapes interest rates on that basis. He also recalled that despite the high deficit recently, the economy has managed to get through a strong period of disinflation, which in his view shows the limited impact of fiscal policy on prices.
NBP President A. Glapiński said on Thursday that the MPC is ready to raise rates as early as November if the latest projection shows worrying and growing inflation signals. For now, however, he does not expect such a move. In October, the reference rate was kept unchanged at 3.75 percent for the seventh month in a row.
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