Economic comment

In connection with the progress on the digital euro, as well as the global developments related to digital currencies, we explain in this text what central bank digital currencies (CBDC) are, why central banks are working on them, and what their issuance may entail. We explain that the innovativeness of CBDCs stems from their status as a widely accessibly digital payment instrument which is simultaneously a central bank liability. We also clarify that central banks are working on CBDCs in order to maintain the relevance of public money in an increasingly digital economy. Finally, we argue that even though issuing a CBDC may lead to an outflow of deposits from the banking sector, the actual impact of CBDC on the banking sector will depend on the CBDC’s design and need not be negative.

Today’s conference of the NBP governor Adam Glapiński confirmed, in our view, that the central bank is already close to the end of the monetary easing cycle. Glapiński admitted that the inflation outlook has improved, which has allowed the MPC to ease policy once again, but then repeated several times that interest rates are currently appropriate, at the level where they should be. (...). He said that in the “ideal” scenario when inflation remains fully consistent with 2.5% inflation target, the main interest rate should be at 3.5-4.0%, and his personal view is that 4.0% terminal rate would be OK, not too high for the Polish economy. (...)

The Monetary Policy Council cut main interest rates by 25bp, the main reference rate to 4.25%, in line with market consensus. The updated NBP projection shows the mid-point of 50% confidence range for inflation forecast at 3.65% in 2025 (0.3pp lower than in July), 2.95% in 2026 (0.15pp lower) and 2.6% in 2027 (0.25pp higher than in July). GDP forecast was lowered slightly in 2025 (-0.15pp, to 3.45%), and lifted significantly in 2026 (+0.55pp, to 3.65%) and only minimally 2027 (+0.1pp to 2.6%). The post-meeting statement did not change significantly compared to the October’s version and does not include any new forward guidance. The list of risk factors for inflation remained virtually unchanged.  (...)