“If we had started to tighten monetary policy as early as 2019, there would be much more room for potential policy easing during a pandemic. This option was not used. Certainly, the signals were missed in the world, not only in Poland. Jerome Powell, the chairman of the Fed, was explaining to everyone that it was temporary and everything would pass. Now I think that there is a consensus in large world economies that inflation has hit a party, it will stay for longer and something needs to be done “- said Prof. Joanna Tyrowicz, new member of the Monetary Policy Council.
When asked about inflation developments in the coming months, the economist replied: 20 percent inflation wouldn’t surprise analysts, but that’s not my forecast.
Clearly, our current economic situation will trigger interest rate hikes. In what amount and on what horizon – it is decisive. We have very negative real interest rates, accelerating inflation and a bad economic situation. Inflation should be close to 2.5 percent, it is at 16.1. The NBP is not free to decide here whether or not it wants to raise interest rates – she pointed out.
She also explained how an increase in interest rates inhibits price growth. The point is not that the number of new loans taken has fallen, but that those households that have already taken loans and are rising interest rates will necessarily have to lower their consumption. This, of course, reduces the quality of life, but it is this mechanism thanks to which we are able to, at least partially, count on lowering inflation – said the professor of the University of Warsaw.
She also criticized the statements of the head of the NBP, Adam Glapiński. Today, his ability to convince the markets of anything is probably not very high.
While anticipating her functioning in the Monetary Policy Council, she recalled her work at the NBP. Someday you have to stop complaining and get down to business. When prof. Glapiński was a member of the MPC, he rarely went there, he did not have much contact with analysts. When he became the president of the NBP, he started with the removal of 10 percent of analytical positions, including mine. He probably just did not like this group of NBP employees – she pointed out.
The credibility of monetary policy must be enhanced and inflation must be brought to the target as quickly as possible. Monetary policy in Poland is responsible only for the price level, in this sense it differs from the FED and the ECB. There, considerations about the economic situation, in terms of GDP and unemployment, may be important. In our country, the mandate of the NBP does not include it at all, which means that we have a much stronger obligation towards society to bring inflation down to the target than the ECB or the FED have. – said Joanna Tyrowicz, member of the Monetary Policy Council and economist from the University of Warsaw, in the Internet part of The Noon Conversation at RMF FM.
According to Tyrowicz, monetary policy will also be “less effective if the economy continues to stimulate fiscal policy”: Increasing public spending, increasing transfers, donating funds to households under various pretexts increase the purchasing power of households, but what we have to do is reduce demand. Because the rapid increase in prices comes from the fact that their delivery to the market does not keep up with the willingness to buy them – argued the MPC member.
So how long will it be necessary to raise interest rates in Poland? They will have to be raised longer and higher if this fiscal policy is still expansive, as technically speaking, and wasteful in human terms. – added the economist.
Krzysztof Berenda also asked his guest if the energy crisis, which Poland and Europe are now struggling with, could turn into an economic crisis? According to Tyrowicz, we are already dealing with an economic slowdown. We can make it deeper or shallow, but we are undoubtedly in it – said the economist.
In her opinion, there are two scenarios ahead of us. The middle scenario is that the government’s fiscal policy becomes reasonable, the MPC’s monetary policy becomes reasonable, we all do the best we can and as a result the slowdown is short, relatively shallow and probably will not go very hard through the labor market. This means that it will not translate into large increases in unemployment, it will translate into a weaker negotiating position of employees, into smaller increases, and it will be more difficult to find a nicer job Tyrowicz said.
And the pessimistic scenario is that fiscal policy will continue to be as it is. Monetary policy will continue to be as credible as it is today. And then a serious crash awaits us, i.e. unemployment and a decline in real wages even stronger than the one we are observing today – added the expert.
Joanna Tyrowicz was also asked if unemployment has ended in Poland? According to her, not at all: Poland is a country where more or less the same number of people are looking for a job, but not registering, not looking for a job and registering. And how this translates into the unemployment rate depends to a greater extent on whether there are many or few people – she explained.
In her opinion, the Polish labor market is completely different than in the 1990s or at the beginning of the 2000s: But it is still very dysfunctional. We have a weak mechanism for negotiating wages, we have a very weak mechanism for negotiating working conditions. The pandemic has changed a bit about this, but probably less than we would like. In particular, we have a terribly weak mechanism for informing people that there are opportunities to find a nice job. Employers are also poorly looking for employees Tyrowicz said.
What are the mechanisms? In Poland, when you drive, there is a grocery store or a bank at every corner. And when driving in the Netherlands, there is job placement at every corner – added the economist.