“At the moment interest rates are more likely to rise further, but this may change,” says NBP Governor

“At the moment interest rates are more likely to rise further, but it’s hard to say whether this outlook will not change; the Monetary Policy Council does not make statements concerning its future decisions,” wrote NBP Governor Adam Glapiński in response to questions submitted by PAP Biznes. The Governor said that NBP was not definitively withdrawing from the bond markets, indicating that in the face of the current external price shocks, a marked appreciation of the zloty would have only a limited impact on domestic inflation.

“We will see at subsequent meetings what our further decisions will be. What I can say today is that if the incoming data support our current assessment of the economic situation, the likelihood of further rate adjustments is higher than that of maintaining rates at their current level. But let me stress that that this is a conditional likelihood, an assessment made today. It can change, especially considering that the global and economic situation has recently been volatile, and has surprised us more than once,” wrote the NBP Governor.

“Indeed, one cannot rule out that global commodity prices will decline significantly at some point. Or, that for some reason – whether due to a surge in infections, or further disruptions in supply chains – economic conditions will weaken substantially. And then the probabilities may be quite different. In short, please do not perceive the assessment of those odds as a declaration concerning our future decisions,” he added.

The central path of the NBP projection assumes that CPI inflation will run at 4.9% in 2021, at 5.8% in 2022 and at 3.6% in 2023. The central path assumes Poland’s GDP growth at 5.3% in 2021, and 4.9% in 2022 and 2023.

PAP business received Mr Glapiński’s answers on Wednesday night, i.e. before Friday’s release of the GDP flash estimate for 2021 Q3, which surprised economists with its above-consensus level (5.1% vs 4.8%), and before the weakening of the zloty over the weekend.

The NBP Governor explained in his answers that if in the past there had been guidance about for example, leaving the interest rates unchanged, this had always been conditional, i.e. it were presented on the condition that the future will not stray from the assessments at that time.

“But unfortunately the future is unpredictable, and since the circumstances change, we must respond accordingly, so we adjust monetary policy parameters. For this reason we do not make ex ante announcements of ‘a cycle of monetary policy tightening’, because every time the Council’s decision depends on the new information available affecting assessments of the outlook for inflation and the economic climate. The future can only be discussed in terms of probabilities, which, incidentally, are conditional, too,” wrote Glapiński.

Asked what he meant when, during a recent interview for TVN24 he said that after January inflation would start declining and no further interest rate hikes would be necessary, Glapiński said that today interest rates were more likely to rise further than to stabilise, but it was difficult to say whether this outlook would not change.

“All the more I refuse to speculate about what decision may be made at the Council’s subsequent meetings. One thing I can say with full conviction is that the Council will take all the necessary steps to prevent inflation from becoming permanently elevated. We will do all that is required to meet our primary objective: to ensure price stability in the medium term and to support sustainable growth of the Polish economy. And this particular statement can be considered a declaration, or even a commitment,” he added.

In the NBP Governor’s opinion, the question about what target level of interest rates may be suitable for the Polish economy after the pandemic is the same as the question about an interest rate forecast, which NBP does not publish. “It is our conscious decision, as forecasts of this type are often a source of misunderstandings, especially when they are received or interpreted as unconditional, despite the fact that of course they are conditional. (…) Some of the public perceive central bank forecasts as a declaration. Consequently, these forecasts – contrary to the intentions of the central banks publishing them – do little to increase the transparency or the effectiveness of monetary policy at all, but rather become a source of additional challenges. This is why we do not use this communication tool,” Glapiński explained.

In October and November 2021 the MPC raised the reference rate by a total of 115 bps to 1.25%, in increments of 40 bps and 75 bps. The Council justified the interest rate rises with the need to limit the risk of heightened inflation over the monetary policy horizon, striving to bring inflation down to the inflation target in the medium term, in the face of a substantial rise in global commodity prices, persistent disruptions to global supply chains, the anticipated sustained recovery at home, and the favourable situation in the labour market.


“NBP is not withdrawing entirely or permanently from the bond market. But any operations in this area, should they prove necessary, would aim to support liquidity in the market, and not to enhance monetary easing,” declared Adam Glapiński.

“As I have mentioned on several occasions, even before our October decision to increase interest rates, asset purchases were conducted on a very small scale. Let me remind you that the scale and frequency of our operations has always depended on market conditions, and those have not warranted any significant NBP activity on the secondary market for bonds. In other words, the purchases have expired by themselves. There is no need to terminate them, because at this point their significance is small anyway. This does not mean that NBP is withdrawing entirely or permanently from the market for those securities,” wrote NBP Governor.

“In accordance with the Monetary Policy Guidelines, NBP may buy and sell Treasury bonds or Treasury-guaranteed debt instruments in order to support the liquidity of the market for such securities. In short, should the market situation call for it, NBP may again become active. There is no need for that at the moment, yet we are not permanently withdrawing from the bond market. However, please note that that such operations would aim to support market liquidity, and not to enhance monetary easing because of a change of stance,” he added.


The NBP Governor reiterated in his explanations that the zloty exchange rate was flexible, although NBP reserved the right to intervene, as other central banks do.

He emphasised that NBP did not take any steps in the FX market “without a clear need” and, “it definitely did not launch interventions according to a pre-determined schedule.”

“At the end of last year a risk arose of a strong pro-cyclical appreciation of the zloty, at a time when, in the fourth quarter of 2020, GDP growth lost momentum again, which was why it was necessary to respond. In 2021, we have not undertaken any interventions. So you can hardly say that NBP has a preference for a weaker zloty. We always say that our actions depend on market conditions,” he observed.

Referring to the impact of the zloty exchange rate on inflation, the NBP Governor observed that although the exchange rate influenced import prices, this should not be overestimated.

“With such strong external shocks in the oil, gas and agricultural commodities markets as we are dealing with today, even a substantial appreciation of the zloty has only a limited effect on domestic price growth. At the same time, a strong appreciation of the zloty would certainly weigh heavily on our exporters, some of whom are already struggling with problems related to global factors, and as a result, would have a large-scale negative effect on domestic business conditions,” he said.


Along with the interest rate rise, in October the Council also decided to increase the required reserve ratio to 2%, from 0.5%.

The NBP Governor points out that the decision was purely operational in character: it aimed to facilitate the stabilisation of the POLONIA rate close to the reference rate.

“This is not a decision that directly affects the degree of restrictiveness of monetary policy, it only facilitates the implementation of this policy. We have yet to see the effects of this decision, because it takes effect from the reserve maintenance period starting on 30 November. From that moment on, banks will keep higher average balances on accounts with NBP, which should facilitate the achievement of the operational goal of monetary policy, which is to keep the POLONIA rate close to the NBP reference rate,” Glapiński wrote.

Rafał Tuszyński (PAP Biznes)