Polish MPC retains flexible approach to inflation targeting

Poland will stand by its 2.5% (+/- 1 pps) inflation target, and continue to pursue a flexible approach to inflation targeting given challenges and shocks in the mix, the MPC said in its 2016 policy strategy.

“The council decided to retain the basic elements of the NBP monetary policy strategy to date,” the council said in what is its valedictory strategy paper.

At the same time, due to new trends in perceiving the role of monetary policy that emerged in the post-crisis era, the council “places increased stress on flexible approach to inflation target strategy” and on the need for broader macroprudencial policy.

Flexibility applies to the timeframe for returning to the inflation target and further depends on the nature of shock, its durability and the general assessment of risk the shock poses to to price stability and broader macroeconomic stability in the mid-term, the council said.

The MPC reiterated that it watches total monetary conditions, including not just real interest rates, but real FX rate and with an added eye to fiscal policy for the proper policy mix.

Council decisions will also take into account asset prices, including real estate prices, the document shows. Support for financial system stability may mean allowing for a longer return to the inflation target, the council noted.

The current MPC that approved the strategy document will not be around for its implementation. Eight of the council’s nine regular members conclude their terms at the beginning of 2016. The term of NBP President and MPC chair Marek Belka ends mid-year.

mbn/ gty

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