Despite Poland’s double-digit inflation rate, the central bank cut interest rates by 75 basis points on Wednesday.
Concerns were raised that the central bank was interfering in politics by prematurely cutting interest rates to support the populist governing party ahead of next month’s parliamentary elections.
The reference rate will be lowered from 6.75% to 6%, and other interest rates will also be lowered by that same percentage, according to the National Bank of Poland’s monetary policy council.
The zloty, the currency of Poland, fell in value against the dollar and the euro right away.
Although not by such a significant amount, economists had anticipated a rate cut. Economic and political analysts expressed surprise at such a significant reduction given that inflation is still running at just over 10% annually, despite declining from over 18% earlier this year.
However, Poland’s booming economy is also exhibiting some signs of slowing down, and an election on October 15 will decide whether the conservative ruling party, Law and Justice, will serve an unprecedented third term.
Adam Glapinski, the governor of the central bank, is a supporter of the party and has previously acted in its favor.
Although not by such a significant amount, economists had anticipated a rate cut. Economic and political analysts expressed surprise at such a significant reduction given that inflation is still running at just over 10% annually, despite declining from over 18% earlier this year.
However, Poland’s booming economy is also exhibiting some signs of slowing down, and an election on October 15 will decide whether the conservative ruling party, Law and Justice, will serve an unprecedented third term. Adam Glapinski, the governor of the central bank, is a supporter of the party and has previously acted in its favor.
The cut, according to a pro-market politician named Ryszard Petru, will ultimately hurt Poles more, according to a video he posted on X, formerly known as Twitter.
As a borrower, Petru expressed his happiness at the lower interest rates. However, I am aware that lowering interest rates will reduce our income because of the high rate of inflation.
The decision will bring relief to Poles who have mortgages whose payments have recently increased. Additionally, the economy ought to benefit from it.
However, at a time when Poles are already experiencing excruciating price increases for food, rent, and other goods and services, it runs the risk of causing even more inflationary pressure.
The tendency of central banks to raise interest rates in times of high inflation can help slow down inflation over time by discouraging consumption.
On the other hand, decreasing interest rates results in cheaper financing and generally encourages consumers and businesses to increase their spending.
The central bank has previously stepped in to support the party. The National Bank of Poland displayed enormous banners on its Warsaw headquarters in May, when inflation was at 16%, blaming it on the Russian invasion of Ukraine and the COVID-19 pandemic.
One of the banners read, “Putting the blame on the NBP and the government for the high inflation is a Kremlin narrative.
JOIN US ON WHAT'SAPP, TO GET INSTANT STATUS UPDATES AND BE IN THE KNOW.
CLICK HERE
