Glapinski Says Polish Monetary Easing Cycle Has Been Completed

Polish monetary easing has been completed after the benchmark interest rate was cut last week to record low of 2.75 percent, a level that “opened uncharted territory in terms of how the market and short-term investors react,” central banker Adam Glapinski said in an interview in Warsaw on June 8.

The following are selected comments from the interview.

On risks related to historically low nominal interest rates:

“Low interest rates are justified by the current slowdown combined with low inflation. And we do have low interest rates. They’re low enough to stimulate the economy right now, if it’s susceptible to stimulus. Further rate cuts wouldn’t give any extra impetus to the economy. They’d only increase the risk of portfolio capital outflows, which always occur when rates are too low or have reached an unprecedented low, as is the case in Poland.

‘‘With our most recent decision to cut the main rate to 2.75 percent, we’ve begun testing precisely this instance of record-low nominal rates. This means we’re entering uncharted territory in terms of how the market and short-term investors react. My personal view is that for a medium-sized, open economy like Poland’s, the optimal interest rate should be about 3 percent to 3.25 percent, assuming there’s no risk of inflation exceeding the target over the medium-term monetary-policy horizon. That’s why I favored concluding the easing cycle at that level, which is already a record low.

‘‘I oppose any further interest-rate cuts. I took that position in May because I believed borrowing costs had already been lowered sufficiently to stimulate the economy; we don’t need to do more. At the time, however, I did say publicly that a June rate cut was probable. Now, without changing my own view, I think there’s a low probability of a rate cut in July.”

On whether Poland’s monetary easing cycle has ended:

“My view is that the monetary easing cycle in Poland has been completed. The monthly data and expert forecasts made available to us each month suggest that the July CPI and GDP projections won’t change the picture and won’t have any real significance for our rate decision.

On the zloty’s role in policy makers’ decision:

‘‘The zloty level is also of marginal interest to the Council. Inflation is too low for us to worry about the impact of recent zloty weakness on future CPI. Central bank interventions, in keeping with our policy guidelines, don’t aim to target any zloty level but to prevent strong fluctuations of the currency.”

On economic growth:

“For me, the key is forecasting German economic growth. If we don’t see a recovery there, then low rates in Poland won’t help.

‘‘The situation is making it increasingly obvious that cheap money isn’t a cure-all for what’s ailing the economy and can’t be treated as the single remedy. This is something I’ve stressed repeatedly while advocating a cautious monetary policy. Our outlook depends on a German recovery; without that, the Polish economy won’t rebound, no matter how low interest rates are. Rather than experimenting with rates and increasing the associated risks, we need to find other ways to stimulate the economy, especially through public-sector investments.”

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