Rate Watchers Stunned as Polish Central Bank Turns Data Deaf

(Bloomberg) -- Polish central bank Governor Adam Glapinski makes up in bravado what he lacks in evidence.

Glapinski was unapologetic last week when confronted with figures that showed price pressures on the rise and inflation unexpectedly on target months earlier than forecast. In fact, Glapinski said the data “even reinforced” his conviction that the country’s longest-ever pause on interest rates can grow longer still. That didn’t sit well with economists at lenders including Rabobank and mBank SA.

“We were stunned,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London. “We were hoping that the central bank may perhaps acknowledge that the domestic environment is conducive for demand-led pressure to rise.”

Inflation, whose control is the main mandate of the Monetary Policy Council, has gone from below zero last year to hitting the goal of 2.5 percent for the first time since 2012 as the economy rebounds. Instead of publicly reckoning with the numbers at the central bank’s monthly news conference, Glapinski pointed to slower growth in unit labor costs, a measure of wages and salaries per unit of production, to bolster his view that no change in borrowing costs may be warranted until the end of next year. Poland’s benchmark has been at a record-low 1.5 percent since March 2015.

Such a selective reading of data is resulting in conclusions that are “unfounded” at a time when unemployment is at the lowest since the 1990s and wages are rising at the fastest in five years, according to analysts at mBank. Productivity growth is probably overestimated because of higher immigration, they said in a report.

The MPC’s biggest hawk, Kamil Zubelewicz, has already warned that his fellow central bankers are growing so nonchalant in the face of rising price pressures that rates may stay on hold through 2019. Glapinski has only said that the MPC would act if inflation neared the 3.5 percent upper end of its tolerance band, a prospect he’s described as “inconceivable.”

Traders and economists, however, have continued to cast doubt on the central bank’s guidance. Zloty forward-rate agreements price in a quarter-point increase in borrowing costs over the next 12 months. Poland’s first rate hike since 2012 will bring the benchmark to 1.75 percent in the fourth quarter of 2018, according to a Bloomberg survey.

Glapinski’s assessment of the economy offered a mix of assurance about its “unprecedented” current performance and uncertainty about the future, with policy makers seeing slower growth in gross domestic product in 2018. Investments, a key concern for most members of the MPC, only rose 3.3 percent last quarter, missing the central bank’s forecast by almost half. 

But the governor has focused on statistics that exclude capital spending in the energy and mining industries, which resulted in a figure almost double the overall number.

‘Seems Risky’

“Although the decision on putting the rates on hold could be understood, reassuring that economic conditions won’t change to justify a rate increase seems risky,” said Tomasz Kaczor, chief economist at Bank Gospodarstwa Krajowego.

Meanwhile, core inflation has picked up, accelerating to 0.9 percent from a year earlier in November. That’s also running counter to the MPC’s position that the pace of growth in the index, which excludes food and fuel prices, has “remained low.” Although salaries surged an annual 7.4 percent in October, Glapinski said the council’s view is that wage pressure is “noticeably declining” while productivity increases. 

“It seems that the MPC is less and less willing to make a move, and the higher the inflation and GDP growth, the more dovish the rhetoric,” said mBank economists led by Ernest Pytlarczyk. “All in all, after the upcoming base effects in inflation wane, and stronger inflationary signals emerge, the MPC might be forced to consider a change in its stance earlier than it currently anticipates.”

©2017 Bloomberg L.P.

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