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Polish Rate Hawk Zubelewicz Sets Sights on Single Rate Increase

Polish Rate Hawk Zubelewicz Sets Sights on Single Rate Increase

(Bloomberg) -- The most hawkish member of Poland’s Monetary Policy Council said a single interest-rate increase is needed to ward off the rising threat of inflation.

Central banker Kamil Zubelewicz said that such tightening wouldn’t harm the economy but even he holds out little hope that the 10-member policy panel -- which has kept the benchmark unchanged for seven years -- will back this view.

Unlike its east European peers in the Czech Republic and Hungary, the National Bank of Poland has avoided tightening policy and prospects for higher rates remain dim as the outlook for euro-region growth slows.

“All we need is one hike,” Zubelewicz said in an interview. “It would be safe for economic growth, while helping erase the risk of excessive inflation.”

Inflation quickened by 1.5 percentage points over the last four months, accelerating to a two-year high and topping analysts’ expectations. Nevertheless, central bank Governor Adam Glapinski has maintained his view that record-low official borrowing costs should be extended into 2022, when a majority on the 10-member rate-setting panel end their terms.

Half a year ago, Zubelewicz was the author and sole supporter of the first rate-rise motion put forward to the MPC since 2012. Price growth is occurring slower than he expected when he proposed the hike, but “what’s worse, it’s happening due to local factors.” Inflation, which stood at 2.2% year-on-year in April, will hit the bank’s 2.5% target next year, he said.

Inflationary risks include the rising prices of services as well as uncertainty over electricity costs after a government freeze in 2019 -- an election year -- runs out.

Here’s why Poland’s 1.5% main rate should be increased soon, according to Zubelewicz:

  • To curb local inflation pressure, with CPI threatening to even surge to 3.5%
  • To help the zloty return from currently “artificially” weak levels resulting from low rates
  • To discourage people from excessive borrowing before this phenomenon “becomes a problem” -- especially as Poles will boost borrowing as new welfare handouts kick in
  • To avoid missing the “last moment” before inflation speeds up

Glapinski has said that potential tightening could come only if the economic expansion remains strong and inflation surges past 3.5%, the top end of the central bank’s tolerance range. To Zubelewicz, that’s an overly cautious approach, even if the central bank’s own inflation projections are expected to show an upward shift in the trajectory of consumer prices.

“The bank’s July projection is unlikely to prompt any action,” he said. “And even though the report due out in November may trigger some deeper reflection on growing price pressure, that doesn’t mean I have much faith that policy makers will do anything.”

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Wojciech Moskwa, Michael Winfrey

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