The Monetary Policy Council held interest rates on Wed. as the latest data point to favourable economic conditions that see the scale of expected inflation to be limited by falling oil prices and the legislated freeze on electricity prices, according to the statement released after the monthly policy sitting.
The radical reduction in the inflation outlook means that inflation is unlikely to exceed the target in 2019 or 2020, NBP Governor and MPC chair Adam Glapinski told the post-sitting presser. With GDP growth to slow in the coming years and no inflation threats, that could mean rates remain flat all the way to the end of most MPC members’ terms in early 2022, Glapinski said. Glapinski’s term ends in June 2022.
In its statement, the MPC said that the expected slowdown of GDP growth would help curb inflation and keep CPI in line with the target in the policy horizon. That policy horizon now ends in 2020, but will be extended to 2021 in the March Inflation Report update. In light of the latest developments in oil and power prices, that report is set to bring a sharp reduction in the inflation projection for 2019 and 2020, which saw inflation at a respective 3.2% and 2.9% in the November edition.
With GDP growth having been faster than held for in November, Glapinski beamed that the inflation projection would be reduced at the same time as the growth projection was lifted.
Glapinski said there was no reason to cut interest rates, though he noted one member (surely Eryk Lon) continued to talk about this. Glapinski did add, though, that the MPC had finished a long analysis of non-standard policy instruments and was now ready to use these if needed. Glapinski noted the NBP might hold an official presentation of which instruments would be used, though he added these were precisely the standard ones in use in Western Europe.
Glapinski and MPC members Jerzy Kropiwnicki and Jerzy Zyzynski were a little self-congratulatory at one point, noting that analysts had to admit they had not made any policy mistakes. Kropiwnicki talked about the structure of inflation being benign and Zyzynski, for his part, repeated that he would oppose hiking rates unless too fast credit growth was the fast stoking inflation.