Poland Defies Inflation Surprise by Extending Record Rate Pause

(Bloomberg) -- A sharp jump in inflation wasn’t enough to end Poland’s longest spell of stable interest rates.

While consumer prices are surging the most since 2017, their growth is still below target and dovish central bank Governor Adam Glapinski doesn’t see borrowing costs budging for the foreseeable future, particularly as the world’s major economies retreat from tightening monetary policy.

As economists polled by Bloomberg predicted, the bank on Wednesday left its record-low benchmark rate at 1.5%, where it’s been for four years.

PKO Bank Polski SA says Glapinski, due to speak at 4 p.m. in Warsaw, will play down the significance of the latest inflation numbers “and follow his dovish rhetoric.” Even so, “rising inflation will likely fuel market expectations and increase the likelihood of an alternative scenario of a rate hike in early 2020.”

Faster growth in consumer prices prompted the Czech National Bank to raise interest rates to the highest level in a decade this month. But in the U.S. and the euro area, a more dovish mood has taken hold amid concerns over global growth and trade tensions. Faced with accelerating inflation, Romania’s central bank also kept rates at 2.5% on Wednesday.

Poland Defies Inflation Surprise by Extending Record Rate Pause
  • Poland’s economy is among the region’s best performers, with expansion likely to have remained above 4% for a ninth quarter between January and March. That data is also due Wednesday
  • $11 billion of election-year stimulus is boosting economic growth, though the knock-on effect for inflation is in dispute. Six members of the Monetary Policy Council say higher rates may be needed over the next year if prices outpace official forecasts
  • The zloty is another reason to worry about consumer prices, with the currency having weakened by 0.6% this year against the euro

Despite April’s inflation surprise, Glapinski’s opinion “will still dominate,” Santander Polska economists led by Piotr Bielski said in a note. “The MPC’s internal consensus is unlikely to change significantly as long as inflation remains below 2.5% and before there’s higher conviction that the upward tendency in consumer prices is persistent rather than transitory.”

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