As long as the pandemic continues, interest rates will be zero

Adam Glapiński, the President of the NBP, has set out the conditions for the start of discussions on tightening monetary policy. They will almost certainly not be met this year.

The economy is only at the beginning of recovering from the pandemic. This means that for the time being it is not threatened with overheating, even if the rebound in economic activity remains as fast as in recent months. In this situation, there is no reason for the Monetary Policy Council to rush with interest rate increases.

This is how the condition of the Polish economy was evaluated by the NBP President during a videoconference on Friday. It would be difficult to find in his July speech any signs of a change to more hawkish rhetoric, which some economists noticed in June.

At its meeting on Thursday, the Monetary Policy Council maintained the NBP reference rate at the record low level of 0.1%. As explained in the press release, inflation is clearly above the NBP target (2.5%), but this is a temporary phenomenon caused by factors beyond the control of the domestic monetary policy.

At first glance, the new projections by the NBP’s Economic Analysis Department, outlined in Thursday’s announcement, do not confirm these expectations. They suggest that, with unchanged interest rates, inflation in 2022-2023 will amount to ca. 3.3%, after 4.1% this year. This means that it will be permanently close to the upper border of the band of permissible deviations from the NBP target.

(rp.pl)