“The recent government decisions, i.e. a higher than expected increase in the minimum wage, by as much as 18% on average, and the solidarity shield, reducing the negative effects of inflation on household disposable income, do not affect our scenario for interest rates in 2022 (we still assume one increase of 25 basis points), indicate, however, that the realization of the announcements of some members of the Monetary Policy Council about the beginning of interest rate cuts in the second half of the 2023 is burdened with an increasing risk“- it was written in the bank report.
According to the latest announcements by the government, from January 1, 2023 the minimum wage will increase to PLN 3,490 gross, and from July 1 – up to PLN 3,600 gross. Earlier, the government proposed that from January 1, 2023 the lowest gross salary should be PLN 3,383, and from July 1, 2023 – PLN 3,450.
Thursday the government presented the details of the so-called Solidarity Shieldwhich is to protect Poles against sudden increases in electricity prices. As part of the Shield, from 2023, a fixed electricity price will be introduced for all households up to an annual consumption of 2,000. kWh per year. There are also exceptions increasing the limit to 2.6 thousand. kWh. In addition, reducing electricity consumption by 10 percent. next year will be “awarded” with a discount of 10 percent., charged on the entire electricity bill. Farms that are heated with electricity will receive an energy allowance. In addition, the government plans to allocate approx. PLN 5-6 billion to subsidize the purchase of energy and gas for energy-intensive companies.
ING Bank Śląski economists in Friday’s comment indicated that a scenario in which there may be no further interest rate increases in Poland (a week ago, the MPC raised them by 25 basis points, to 6.75%, the highest level since January 2003. .).
They note that the “de facto” inflation target is significantly different from the “de jure” target (2.5% +/- 1 percentage point). Recent comments show that the NBP aims rather at a decline in the annual CPI (possible by the end of 2023) and a “soft landing” of the economy (no significant deterioration in the labor market and no recession), while lowering the CPI inflation index to 2.5%. it is a goal as if forgotten. Fiscal expansion is an important factor that reduces the effectiveness of the rate hikes to date. Currently, the total policy mix (combination of monetary and fiscal policies) is only slightly restrictive despite inflation at 16.1%. – ING BSK experts wrote.
In their opinion – with this definition of NBP goals – one can imagine interest rate cuts in 2023. However, this approach to fighting inflation means that we will face another cycle of rate hikes in 2024. “The method of fighting inflation differs from the approach of other countries, where central banks and governments communicate that there is a need to cool the economic situation, the labor market, and a slower wage growth than the inflation rate. All this to avoid a repeat of the scenario from the 1970s in the US, when The fight against inflation took several cycles of increases. The final costs of fighting it were greater than the cooling of the economic situation at the beginning of the period of high inflation “- added economists from ING Bank Śląski.
“A large fiscal expansion still means a strong demand, and this will also help to shift the higher costs of companies to retail prices. The budget cost of the new shield (including aid to companies) will amount to about 1% of GDP, which, combined with other measures, is driving the deficit of the financial sector from the level of 4.4% of GDP planned by the Ministry of Finance to close to 7-8% of GDP in 2023. Other countries also use defense mechanisms in the face of an energy shock (e.g. France), but they are smaller in scale. exaggerate the scale of the aid so as not to cause an inflationary effect as after a pandemic. Excessive fiscal impulse will act pro-inflation and will require higher interest rates for longer “ – ING BSK analysts wrote.
– We are dealing with a huge divergence in the conduct of monetary policy by the Fed, the ECB and the NBP. The Polish central bank is currently not meeting the inflation target and is focusing only on the real economy, he said recently Jakub Borowski, chief economist of Credit Agricole in Polandin an interview with Business Insider Polska.