Poland bank governor says large interest rate cut justified by falling inflation

WARSAW, Poland — The governor of Poland's central bank said Thursday that its large interest rate cut was justified despite high inflation because prices are stabilizing and the era of high inflation is ending.

Adam Glapinski spoke a day after the bank's monetary council announced that it was cutting interest rates by 75 basis points, a much larger reduction than had been expected.

Critics of Poland’s populist authorities accused Glapinski and members of the bank’s monetary policy council of acting to help the governing party ahead of parliamentary elections next month with a large cut seen by economists as premature. Glapinski is an ally of the party, which is fighting for an unprecedented third term.

The bank cut its reference rate from 6.75% to 6%, and other interest rates by the same amount.

Poles have been suffering from sharply rising prices of food, rents and other goods. Inflation hit over 18% earlier this year and registered 10.1% in August.

Glapinski declared that inflation was coming down steadily, noting that prices have essentially been stable for the past five months. He said he expects inflation to be slightly above 8.5% in September, meaning that inflation is “already in the single digits."

Although the bank’s inflation target is 2.5%, Glapinski said conditions have already been met for cutting interest rates. At a news conference in Warsaw, he called it a “happy day” and said inflation might fall to 6% by the end of the year.

He also cited the risk of not cutting rates now, noting that the economy is slowing down and that there is a serious threat of recession in neighboring Germany, a major market for Polish exports.

“Inflation is falling faster than we expected and the economy is worsening faster than we expected,” Glapinski said.

The cuts will give some relief to those with housing mortgages, but will also risk further inflation.

The zloty currency fell against the dollar and euro as he spoke to reporters, continuing a sharp decline after the interest rate cuts were announced on Wednesday.

The weakening of the zloty will cause imported goods to become more expensive for Polish consumers. The zloty weakened against the dollar some 2.5% since Wednesday. But it should also make Polish exports cheaper to those buying them with euros, dollars or other currencies.

During high inflation, central banks tend to raise interest rates, which can help bring down inflation over time by discouraging consumption. Interest rate cuts, on the other hand, make financing cheaper and tend to encourage consumers and businesses to spend more. That can stimulate the economy but also make inflation worse.

Marek Belka, a former central bank governor with the left-wing political opposition, criticized the rate cut. He said Poland is now “following in the footsteps of Turkey from several years ago.” In an interview with private radio broadcaster RMF FM, Belka said Turkey President Recep Tayyip Erdogan “tried to combat very high inflation with interest rate cuts. It ended with over 100% inflation.”

Glapinski dismissed such criticism, saying it came from political opponents.

The bank has in the past blamed the COVID-19 pandemic and Russia's war against Ukraine for the rise in prices. Economists say those are indeed causes, but that inflation has also been exacerbated by the government's policies, including spending programs.

Sourse: abcnews.go.com

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