IMF Urges More Polish Rate Hikes to Avoid Economy Overheating
(Bloomberg) -- Poland’s economy could overheat next year unless the central bank continues to raise interest rates, according to the International Monetary Fund.
In a statement following its annual fact-finding visit in Warsaw, the Washington-based lender urged the government to avoid expansionary fiscal policy as economic output moves above potential. It predicts inflation will average 5.6% next year compared with 5% seen in 2021.
“While the recent increase in inflation has been largely driven by factors outside the control of monetary policy, their persistence and the relatively elevated level of core inflation presently suggest that further rate increases will be necessary to minimize second-round effects and stave off overheating risks,” the IMF said.
The National Bank of Poland has attracted criticism for starting to raise interest rates in October, months later than peers in the Czech Republic and Hungary, when consumer prices were already growing at the fastest pace in two decades. Policy makers have since lifted the benchmark three times to 1.75%, while inflation jumped to 7.7% in November and may climb higher.
The IMF urged the central bank to clarify what it intends to do with about 144 billion zloty ($35 billion) of bonds accumulated in its quantitative-easing program, which it launched early last year in the wake of the pandemic and concluded last month.
It also called on the monetary authority avoid currency interventions when markets are working smoothly. Twelve months ago, the NBP surprisingly sold the zloty on the market in an operation it later said would boost its profit and inflows to the government budget.
“The NBP should provide timely guidance on its intentions regarding its bond portfolio as initial maturity dates approach,” the IMF said. “Foreign exchange intervention should also be reserved to periods of disorderly market conditions.”
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