WARSAW, Sept 5 (Reuters) – Poland’s central bank cut its key interest rate by 75 basis points to 6.00% on Wednesday in a shocking decision ahead of October elections when the zloty will plummet against the euro.
Analysts polled by Reuters narrowly expected a 25 basis point cut, but markets and economists alike were blinded to the scale of the easing. The zloty fell 1.5% to its lowest level since May, while bank stocks fell more than 5%.
The National Bank of Poland (NBP) said it made the decision because it expected inflation to return to target sooner than originally expected.
“In the Board’s assessment, recently received data indicate that demand pressures are weaker than previously expected, which will contribute to an early return of inflation to the NBP inflation target,” the Board said in a statement. said.
He said the interest rate adjustment would “help achieve the NBP inflation target in the medium term.”
NBP President Adam Grapinski has previously suggested a rate cut could come in September if inflation falls into the single digits.
Inflation continued to fall in August, just short of this target at 10.1%, according to preliminary figures.
Economists lined up to warn of the inflation risks of such a drastic change in monetary policy.
“It’s too early to cut rates when the outlook for inflation is still far away, certainly too early for such an aggressive rate cut,” said Piotr Bielski, head of the Santander Department of Economic Analysis. Polska Bank.
“Markets have priced in the risk of entrenched inflation and it will generally be difficult for inflation to return to target.”
In a memo, analysts at JPMorgan said it was appropriate for the central bank to be cautious given the great uncertainty about the inflation outlook for this cycle, not only in Poland but globally.
“If rate cuts are arguable now, scale cuts are even more arguable,” they wrote.
Cardiff University research economist Wojciech Pakzos said the move may have been influenced by political considerations, with parliamentary elections scheduled for October 15.
“We assess the risk of a trend reversal and a new inflation rise and the risk of reversing this decision and returning to rate hikes after the election,” he said on X (formerly Twitter). “I believe that this is 100 percent a political decision and not one driven by economic logic.”
Grapinski is an ally of the ruling Law and Justice (PiS) party and has decades-long ties to party leader Jaroslaw Kaczynski.
“The Monetary Policy Council makes decisions independently of the government. The composition of the council is diverse and is elected by various state bodies. The government has no voice in the council’s decisions. Their claims are baseless,” a government spokesperson said. He said.
Reporting by Anna Koper, Pawel Florkiewicz, Alan Charlish, Anna Wlodarczak-Semczuk, Karol Badohal.Additional Reporting by Mark Jones, Editing by Justina Polak, Nick McPhee, Sharon Singleton, Margherita Choi
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