Poland's fiscal policy limits space for possible monetary easing - MPC November minutes
Poland's Monetary Policy Council assessed at its November meeting that the draft state budget for 2025 envisages a very high structural deficit, which means that the shape of fiscal policy limits the space for potential monetary easing, according to the minutes - description of the discussion at the MPC decision-making meeting held on November 6.
"The Council members observed that the shape of fiscal policy is a significant factor influencing medium-term inflation outlook. It was pointed out that fiscal policy had been eased in the current year. It was underlined that a marked reduction in the deficit of the general government sector, including the structural deficit, would be conducive to curbing inflationary pressures," the minutes said.
"Meanwhile, it was assessed that the 2025 Draft Budget Act envisaged the sector’s deficit in 2025, including the structural deficit, to remain very high, which means that the planned shape of fiscal policy limits the space for potential monetary policy easing," it added.
Discussing the key uncertainties for the medium-term inflation outlook, the MPC members stressed in November that it remains difficult to assess the extent to which past and possible future increases in energy and other regulated prices have translated into inflation expectations and, through wage demands, into wage growth.
In this regard, some Council members pointed out that consumer inflation expectations had risen somewhat in October. It was further pointed out that, in the event of a stronger recovery in activity than currently expected, rapid wage growth could prove more sustainable.
At the same time, the MPC members stressed that if the weak economic situation in Germany continues or the absorption of funds from the national recovery plan KPO proves weaker than current expectations, this could result in lower demand pressures and consequently lower price dynamics. Poland's Monetary Policy Council members pointed out that very high uncertainty related to the tense geopolitical situation persists.
With regard to the labour market situation, it was pointed out that unemployment remained low and employment in the Polish economy high, but that there was also a further gradual decline in employment in the business sector.
At the same time, some Council members assessed that the employment data were indicative of a change in the sectoral structure of labour demand and reflected demographic changes, while, in their view, aggregate labour demand in the economy remained strong.
Analysing the development of wage pressures, the MPC members stressed that the wages growth in the corporate sector in September this year declined slightly but remained in double digits.
Again, there was an opinion that, in view of elevated inflation - including inflation net of food and energy prices - especially in the context of high wages growth, the current level of Poland's interest rates, with the current evolution of inflation expectations, is too low to ensure a sustainable return of inflation to the target in the medium term.
The MPC decided to keep the reference rate unchanged at 5.75 percent in November.
tus/ ao/ nl/
