glapinski

A sharp start to the easing cycle in Poland

The direction is not a surprise, but its scale clearly is (75bp vs an expected 25bp cut). Poland joins other emerging markets in easing, despite a more risky inflation backdrop.

 

A 75 basis point cut

On the anniversary of the last interest rate hike, the Monetary Policy Council (MPC) cut rates by 75bp. The direction is not a surprise, but its scale clearly is (we expected a 25bp cut). The MPC did not wait for inflation to fall to single-digit levels, despite this being a condition set by the National Bank of Poland (NBP) president. Also contrary to earlier declarations, the MPC did not start the cycle gradually.

 

A weaker GDP outlook, lower demand pressure and inflation expectations but important inflation risks omitted

The main message from the post-meeting statement is that given a weaker global and Polish economic situation, the Council expects inflation to return to the NBP's target quicker than previously expected. The MPC

Governor of NBP Prof. Adam Glapiński answers questions Global Risk Regulator's questions - Physical cash

Governor of NBP Prof. Adam Glapiński answers questions Global Risk Regulator's questions - Physical cash

Finance Press Release Finance Press Release 17.12.2021 10:10
The National Bank of Poland has strongly supported the right for consumers to carry on using physical cash - can you explain why that is and what is happening on the legislative front in this area? The uninterrupted, safe and stable operation of the payment system is the foundation of a well-functioning economy, which is why the central bank actively supports it, both in the area of cash payments as well as cashless transactions. These two areas are of great importance, complementing each other, and at the same time creating the possibility of making payments in the preferred form. Cash is still widely used, both in Poland and in many other countries. Citizens still want to use this form of money, which shows that the elimination of cash would be contrary to social expectations and public interest. At the same time, we are fully aware of the significant role of cashless payments in the modern world and we support their development. This is why we also have a very well-developed cashless payment system in Poland. However, the financial system, and in particular the central bank, cannot discriminate against people who prefer cash payments, and in particular, cannot exclude such people from economic transactions. Therefore, to ensure equilibrium, the central bank must continue to meet the demand for cash, which constitutes legal tender. Moreover, we should not forget the very important role of cash in crisis situations, such assystem failures or cyberattacks. In such situations, cash enables the smooth settlement of payments, prevents market panic, and strengthens citizens’ confidence in the state. Following the outbreak of the pandemic, demand for cash rose significantly in Poland. At the same time, there were numerous cases of refusal to accept cash, both in shops and in public offices for the settlement of public-law liabilities, which should not take place. This is why NBP has prepared the National Cash Security Strategy, which defines the course of action in the field of broadly understood security,  accessibility of cash and its acceptability as legal tender. This document was created on a voluntary basis by all interested parties, starting from central government offices, to cash processing and cash-in-transit firms, independent cash machine operators, banks and Polish Post. In the field of cash acceptance, thanks to the active involvement of the institution that I head, statutory regulations have already been introduced. At my request, President Andrzej Duda proposed an amendment to the Act on Payment Services. Since November 2021 there has been a legal obligation, with few exceptions, to accept payment with the use of banknotes and coins issued by NBP. This will ensure that Poles have a choice regarding the payment method and will prevent financial exclusion of social groups, which is something that cannot be allowed to happen.
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What do we learn from National Bank of Poland Governor testimonial

ING Economics ING Economics 05.01.2023 19:27
Governor Glapiński stated that based on history a radical disinflation process can be very costly. This suggests that the central bank is unwilling to tighten policy further to accelerate disinflation. The governor hopes that interest rates can be cut at the end of 2023, but we see it unlikely due to elevated and persistent core inflation President of the National Bank of Poland, Adam Glapiński Current inflation At the January 2023 press conference, National Bank of Poland President Glapiński positively assessed the deeper-than-expected decline in CPI inflation in December (16.6% year-on-year, down from 17.5% in November). At the same time, he stressed that current inflation is very high and that reaching the inflation target is still a long way off and the disinflation process will be gradual. External environment President Glapiński noted the weaker economic environment surrounding the Polish economy, including the technical recession in the euro area. The underlying cause is the war in Ukraine. The first effects of the tightening of monetary policies of the major central banks are also visible. This is accompanied by a favourable situation on the labour market, although wages are falling in real terms. In Poland, this has been the case since May 2022. Inflation outlook in Poland The NBP head stressed that global commodity prices have been falling recently, although they are still several times higher than three years ago, before the pandemic and the war in Ukraine. He also noted the slower dynamics of agricultural commodity prices and improvements in global supply chains. The reduction in producer inflation PPI indicates lower cost pressure. According to the NBP, the disinflation will not be rapid and steep. CPI inflation will pick up in January and February (although it is difficult to assess whether it will exceed 20% YoY) and then decline to single-digit levels by the end of 2023, possibly as low as 8% YoY in December this year.  PLN exchange rate President Glapinski noted that the zloty exchange rate is stable and resistant to external turbulence despite NBP rates remaining unchanged in recent months. Unlocking the funds from the EU Recovery and Resilience Facility would be positive for the zloty rate, although the NBP president assessed its impact on GDP and inflation as negligible. In his view, full utilisation of these EU funds would accelerate Poland’s GDP growth by 0.4 percentage points in the first year and by 0.2pp in following years. Monetary policy In the Monetary Policy Council's view, the level of NBP interest rates (6.75%) is adequate in the current environment. Once again Governor Glapiński expressed hope that interest rates could be lowered late this year, although this hope is lower as forecasts for end-2023 CPI inflation are higher (around 8% YoY in December, rather than c.6%). He pointed out that for this to happen the fall in inflation must be judged as sustainable. Conclusions In our view, the NBP governor statements suggest that the NBP will not aim to bring down inflation quickly to the de jure inflation target of 2.5% with a +/-1pp deviation. The de facto inflation target is a gradual reduction in headline CPI inflation. In our assessment, after the rise in inflation in January and February, the disinflation process in the following months will be accompanied by a persistently high level of core inflation, several times higher than the NBP's inflation target. This will not allow for NBP interest rate cuts this year. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
NBP Holds Rates Steady with Focus on Future: Insights from Press Conference

NBP Holds Rates Steady with Focus on Future: Insights from Press Conference

ING Economics ING Economics 07.06.2023 08:18
National Bank of Poland leaves rates unchanged, focus on tomorrow’s press conference The National Bank of Poland rates and statement after the June Monetary Policy Council meeting were unchanged. More information should come from tomorrow's conference by the central bank president. We expect a slightly more dovish stance.   As expected, NBP rates remain unchanged (reference rate still at 6.75%). The post-meeting statement noted a decline in first quarter GDP and a further contraction in consumer demand, with investment still growing. The document again underlined the favourable labour market situation, including low unemployment. As expected, the MPC noted a further decline in CPI inflation and a marked decline in core inflation in May. The Council continued to see a pass-through of rising costs onto finished goods prices. Aside from updating paragraphs on the first quarter GDP figure and the latest inflation data, the rest of the statement was largely unchanged. The Council reiterated its view that the return of inflation to the NBP's target will be gradual due to the scale and persistence of past external shocks.     The key event in the context of the monetary policy outlook is tomorrow's press conference by NBP President Glapiński. We expect its tone to be more dovish than a month ago. The decline in inflation has been faster than expected (albeit close to the NBP's March projection). The peak in core inflation is most likely behind us, and the strengthening of the zloty and lower commodity prices should favour further disinflation. The short-term inflation outlook has improved, and some MPC members have again begun to raise the topic of a readiness to cut interest rates before the end of this year.     In our view, the medium-term inflation outlook remains uncertain, and with a tight labour market, high wage pressures and strong consumer acceptance to price increases, inflation may therefore stabilise in the medium term at levels well above the NBP target. The NBP's projection, assuming it leaves interest rates unchanged, suggests a return of inflation to the target by the end of 2025, and a possible rate cut before the end of 2023 could delay this.   Therefore, in the baseline scenario, we see no rate cuts this year. However, an improvement in the short-term inflation outlook, the strengthening of the zloty and a possible softening of other central banks' rhetoric in the coming months could serve as arguments for a single MPC rate cut in the second half of the year. We estimate the probability of such a scenario at 30-40%.
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A Surprisingly Aggressive Start to Poland's Easing Cycle Amidst Inflation Concerns

ING Economics ING Economics 08.09.2023 10:11
A sharp start to the easing cycle in Poland The direction is not a surprise, but its scale clearly is (75bp vs an expected 25bp cut). Poland joins other emerging markets in easing, despite a more risky inflation backdrop.   A 75 basis point cut On the anniversary of the last interest rate hike, the Monetary Policy Council (MPC) cut rates by 75bp. The direction is not a surprise, but its scale clearly is (we expected a 25bp cut). The MPC did not wait for inflation to fall to single-digit levels, despite this being a condition set by the National Bank of Poland (NBP) president. Also contrary to earlier declarations, the MPC did not start the cycle gradually.   A weaker GDP outlook, lower demand pressure and inflation expectations but important inflation risks omitted The main message from the post-meeting statement is that given a weaker global and Polish economic situation, the Council expects inflation to return to the NBP's target quicker than previously expected. The MPC pointed to lower demand pressures and a decline in inflation expectations. In our opinion, the Council overlooks many risks: expansionary fiscal policy, high wage growth, and the worrisome structure of core inflation (rapidly rising service prices). In addition, the post-meeting statement underlined that "a faster reduction in CPI would be supported by strengthening of the zloty", but today's decision results in the opposite move.   Thursday's press conference should provide guidance on the easing cycle The press conference by NBP President Glapiński on Thursday should underline the strategy behind the rate cut today. This may either be a one-time adjustment (the market had priced in about a 125bp cut by the end of the year prior to the decision), followed by a pause, or it is the decisive start of a longer cycle of interest rate cuts. The NBP's past track record disallows that to be settled today. Investors were surprised, as seen in the rapid zloty easing, just after the NBP decision was announced.   Short-term disinflation should continue, medium-term risks arise In theory, Poland joins the group of emerging markets that are starting to ease, but it is very different from them: core inflation is falling more slowly than in other Central European countries, while LATAM economies first brought real rates to very positive before launching their easing cycles. In the short term headline inflation should keep decreasing, but the medium-term outlook is more uncertain. The decline in inflation is due in large part to the receding of the earlier energy shock, but the deceleration in core inflation has been slow. So a further decline in inflation toward the NBP target in the medium term is not clear in our view. The labour market remains tight, resulting in upward pressure on wages. Fiscal policy also remains expansionary. In this context, we perceive the Council's decision as risky from the point of view of restoring price stability in the medium term.

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