Polish Forward Guidance on Rates Now Doesn't Go Beyond This Year

(Bloomberg) -- As Poland extended its longest-ever pause in interest rates on Wednesday, the central bank all but ruled out a hike in the months ahead without offering much guidance beyond this year.

The Monetary Policy Council left its benchmark at a record-low 1.5 percent, in line with the forecasts of all 30 economists surveyed by Bloomberg. Governor Adam Glapinski used the news briefing after the meeting to question what he called “slight overreacting” to his comments last month that prompted investors to price in a quarter-point increase around the turn of the year. While holding fast to his view that a period of record-low borrowing costs could last through 2018, next year is now off limits.

“I’m trying to avoid talking about the situation in 2019,” Glapinski told reporters in Warsaw. “I definitely stick to my view on 2018 and that’s the maximum one could talk about.”

Central banks in emerging Europe have been at the forefront of the continent’s monetary tightening, with Romania following the lead of the Czech Republic, the first nation in the European Union to raise rates last year. As Poland also tries to cope with price pressures and faster economic growth, Glapinski is showing doubt that the MPC can hold out much beyond 2018 with rates still set at a level warranted by the country’s worst-ever stretch of deflation three years ago.

‘Still High’

Poland’s benchmark has stayed at its historical low since March 2015, with Glapinski describing Polish borrowing costs as “still high” in comparison with other economies including the Czech Republic, where the policy rate is 0.75 percent after three increases. Romania lifted its key rate for a second straight month on Wednesday, raising it by a quarter-point to 2.25 percent.

Forward-rate agreements are again pricing in a full quarter-point rate hike in Poland over the next 12 months, rebounding from a three-month low reached in January. Speaking in a January interview about the possibility of monetary tightening next year, Glapinski said that “of course, it could happen.”

Once dismissive of risks to price growth, Glapinski has recently sounded more vigilant, pointing to “inflation impulses from abroad,” especially as regards oil, and wage increases on the back of economic acceleration. Polish consumer-price growth slowed in December from a five-year high, slipping to an annual 2.1 percent, while the economy probably notched expansion in excess of 5 percent last quarter.

“Next month, the new inflation projection will be released and in our view it may show an even higher path than before,” Bank Zachodni WBK analysts led by Piotr Bielski said in a note. “We think that CPI zig-zagging in a horizontal trend below the 2.5 percent target for the better part of this year will give the MPC a good enough argument to keep monetary policy on hold until the very end of 2018.”

--With assistance from Joshua Robinson

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net, Adrian Krajewski in Warsaw at akrajewski4@bloomberg.net.

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Paul Abelsky, Andrew Langley

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