(Bloomberg) -- The costs of Poland’s high interest-rate policy may outweigh the benefits of such a restrictive monetary stance, according to economists at the country’s largest commercial lender.
While some policymakers have suggested easing may start in the second quarter of next year, central bank Governor Adam Glapinski has said that interest rates are likely to remain on hold until 2026 due to lingering price pressures. Officials have kept the benchmark at 5.75% for nine months despite a decline in inflation to below 3%.
“Monetary policy is so restrictive that in the near future its economic costs may outweigh the benefits that high interest rates have on inflation,” PKO Bank Polski SA economists led by Piotr Bujak said in a note Friday. “A fine-tuning of monetary policy seems justified” by the second half of 2025 at the latest, they wrote.
Increasingly positive real rates will “significantly” reduce wage growth, a key source of concern for the central bank, Bujak’s team said. Furthermore, uncertainty related to regulatory factors impacting prices has decreased enough to “conclude that the central bank’s most pessimistic inflation scenarios won’t materialize.”
PKO said it would be “optimal” to cut rates once this year and three more times in 2025. Measured against this scenario, PKO calculated that keeping rates unchanged until 2026 would reduce gross domestic product by 2%, while the price level would be 0.4% lower.
Poland’s policymakers are becoming “more and more hawkish” compared to their regional peers as well as the European Central Bank, which started its easing cycle in June, Bujak said.
Such an “extremely restrictive” stance may also push companies to finance more abroad, which PKO said “may reduce the effectiveness of Poland’s monetary policy and distort mechanisms of competition among domestic entities.”
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