“Raising interest rates will not reduce supply inflation, and the decision made by the Monetary Policy Council (MPC) to raise rates by 40 bp (in the case of the reference rate) in October was aimed at stopping inflation from consolidating, due to demand factors,” said Marta Kightley, the first deputy governor of the National Bank of Poland (NBP).
“The increase in interest rates will not reduce supply inflation. The increase leads to the fact that inflation will not persist in the future due to the demand side,” Kightley said during the meeting of the Public Finance Committee on “Monetary Policy Guidelines for 2022”.
She added that due to the good economic situation and low unemployment, high inflation may persist in the coming quarters and next year, and therefore the Council decided to raise interest rates.
“The interest rate hike is not a reaction to the increase in the price of crude oil, we are not able to do anything here, but to the situation on the demand side, so that inflation does not persist,” said the vice president of the central bank.
She stressed that “the economy would not be served by a radical reduction in inflation, as the costs would be very high”.
“An increase in interest rates and a reduction in asset purchases is the path to achieving the inflation target in the future,” assessed Kightley.
She assessed that the NBP takes a conservative position as regards the possibility of raising the inflation target.
“We are conservative. Big banks in the world, like the ECB and the Federal Reserve, de facto raised their inflation targets, we did not. We keep the same inflation target and talk about how decisions are made in the context of the pandemic crisis,” Kightley said.
Source: NBP and IBSnews
