Poland Keeps Record-Low Rate Even With Inflation at 20-Year High
Poland maintained record-low borrowing costs after its central bank chief said the fastest inflation in two decades isn’t sufficient grounds to start raising interest rates.
The benchmark was held at 0.1% on Wednesday -- where it’s been for 1 1/2 years. With Governor Adam Glapinski snuffing out nascent expectations for a shift in his dovish stance just days before the meeting, all economists predicted the move.
Attention is now shifting to November, when the bank will release updated economic forecasts. Glapinski says three criteria must be met to end ultra-loose monetary policy: strong economic expansion, a favorable labor market and elevated inflation.
“These conditions are likely to be fulfilled in late autumn,” said Grzegorz Maliszewski, chief economist at Bank Millennium SA. “The next waves of the pandemic shouldn’t disrupt the economy significantly. But a tight labor market and wage growth will raise demand pressure, keeping inflation above the target.”
Poland, the European Union’s biggest eastern economy, has so far lagged behind peers such as Hungary and the Czech Republic in removing crisis-era stimulus. Glapinski deems it too risky to raise rates now -- a move that could curb business activity and erode export competitiveness by boosting the zloty.
But in wide-ranging comments published Monday in local media, he divulged that one step toward tightening monetary conditions -- scaling back quantitative-easing -- has already begun.
The central bank “isn’t ignoring elevated inflation and won’t allow it to become persistent,” Glapinski said. Consumer prices soared 5.4% from a year ago in August, the quickest pace in the European Union.
Worried about inflation expectations becoming unanchored, a minority on the 10-strong Monetary Policy Council proposed 15 basis-point rate increases at each of the last two meetings. But without success.
The central bank said Wednesday in a statement that its monetary policy “supports the consolidation of the economic recovery following the pandemic-induced recession and stabilizes inflation at the level consistent with the bank’s inflation target in the medium term.”
Malgorzata Krzywicka, an economist at Erste Group in Vienna, sees a 15 basis-point rate move materializing in November. But she sees risks to the outlook with Covid-19 still not tamed.
Forward-rate agreements currently price in a 20 basis-point increase in the benchmark in three months, down from 25 basis points last week.
“Given recent softer real economy data, from Poland as well as from the major economies, a postponement of the first hike into the first quarter of 2022 can’t be ruled out,” Krzywicka said.
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