The main statutory goal of the central bank’s monetary policy is to ensure price stability. When raising interest rates, the central bank must be careful not to dampen economic activity. “Monetary policy will be conducted in such a way as to support sustainable economic growth and the stability of the financial system,” reads the document “Monetary policy assumptions for 2023” published on Monday.
According to the document, The NBP will continue to apply the strategy of the medium-term inflation target at the level of 2.5%. with a deviation range of ± 1 percentage point. The NBP interest rates will remain the basic instrument of monetary policy. Monetary policy will continue to be implemented under the conditions of a floating exchange rate. However, the NBP does not rule out intervention in the currency market.
Let us recall that in recent months inflation in Poland has greatly exceeded the inflation target adopted by the central bank. In August, it rose to 16.1 percent. per year. This is how the situation is explained by the NBP.
“The medium-term nature of the inflation target means that – due to macroeconomic and financial shocks – inflation may periodically run above or below the target, also outside the specified range for deviations from the target (…). Should inflation deviate from the target, the Council it flexibly determines the desired pace of inflation returning to the target, as bringing inflation down to the target quickly may entail significant costs for macroeconomic or financial stability, “we read.
Predictions for 2023
“Current forecasts indicate that in the second half of 2022 and in 2023 – after a period of a strong recovery in economic activity in previous quarters – GDP growth will clearly decline. The domestic economic situation will be influenced by a negative supply shock related to the increase in energy and agricultural commodity prices in the global markets and the persistent disturbances in global supply chains. The forecast weakening of economic activity in the euro area and other large economies will also adversely affect economic growth in Poland. The scale of the decline in domestic GDP growth will, however, be mitigated by changes in the fiscal policy. At the same time, it can be expected that in the second half of 2023, there will be some acceleration in GDP growth, supported by public investments and improved economic conditions abroad, although GDP growth will remain moderate“- we read in the NBP document.
The current forecasts of the NBP indicate that due to the continuing impact of factors that have hitherto increased price growth, in the second half of 2022 inflation will remain high. On the other hand, in 2023 – along with the diminishing of their impact on price growth and in the conditions of slower growth in domestic demand and the expected reduction of cost pressure on the labor market, as well as due to the NBP interest rate increases – a decrease in inflation is forecasted.
“At the same time, due to the scale and persistence of previous macroeconomic shocks, in particular commodity shocks, exacerbated by the war in Ukraine, the expected decline in inflation will be gradual,” we read.