Real Interest Rate and Political Costs: How the National Bank of Poland Affected Inflation and the Political Situation in Poland

ECONOMYReal Interest Rate and Political Costs: How the National Bank of Poland Affected Inflation and the Political Situation in Poland

The Consumer Price Index (CPI) inflation in 2023 was 11.5%, therefore an increase in the price of consumer goods and services of 4.9% over the past few months indicates a severe decrease in inflation.

This fall is due to a new, notably more stringent monetary policy than in previous years, as evidenced by the Central Bank of Poland (NBP) maintaining the reference rate at a constant 5.75% year-on-year in 2023 and during the first half of 2024, despite decreasing inflation. This means that market rates now stand at around 8-9%.

A high real interest rate typically implies a significant political cost for the government. This new monetary policy by the NBP is likely connected with the ruling Law and Justice Party (PIS) losing power to a coalition of four parties, as the NBP’s governor and most of the Monetary Policy Council were appointed by the PIS. The current Council appears to have freed itself from its political dependencies as a result of the elections.

Simultaneously, this new policy maintained stable exchange rates of the Polish currency (zloty) against the dollar and euro, which resulted in reduced transport costs. As a result, inflation began to decline in recent months despite a significant increase in labor costs.

The NPB now underlines that because the statutory goal is to decrease inflation to about 2.5%, further reference rate cuts should, in the opinion of the entire Monetary Policy Council and not just its Senate section, be relatively slow. Such a policy would be in the country’s interest, – emphasizes Stanisław Gomułka.

The post titled “Real interest rate and political costs: How the NBP influenced inflation and the political situation in Poland” first appeared in CEO Magazine.

Source: https://ceo.com.pl/realna-stopa-procentowa-i-polityczne-koszty-jak-nbp-wplynelo-na-inflacje-i-sytuacje-polityczna-w-polsce-12683

Exit mobile version