Polish Central Bank Chief Sees Rate Hike Now as Very Risky

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The head of Poland’s central bank pushed back against rising expectations for interest-rate increases, saying lifting borrowing costs now would be “very risky” despite inflation hitting a two-decade high.

In an interview with the PAP news service just three days before the next monetary-policy meeting, Governor Adam Glapinski said the bank isn’t ignoring elevated price growth and won’t allow it to become persistent.

The pandemic continues to cloud the economic outlook, making it too early to remove stimulus, said Glapinski, who’s views tend to prevail in setting Poland’s monetary policy.

Polish Central Bank Chief Sees Rate Hike Now as Very Risky

“The most important thing is how the economic situation develops next year,” he said. “If economic conditions remain very good, the situation in the labor market remains favorable and inflation exceeds the central bank’s inflation target, it will be justified to withdraw the monetary accommodation.”

Polish Central Bank Chief Sees Rate Hike Now as Very Risky

It’s a familiar tone from the governor, who’s spent months arguing that the bank should look beyond soaring consumer prices, which he deems a temporary phenomenon caused by economic disruption from the pandemic. 

But the bank and the government have faced growing criticism of late for tolerating the current bout of inflation. Former Governor Marek Belka warned last week that Poland risks a “catastrophe,” with rapid wage growth potentially driving even higher future prices. 

Glapinski said on Monday that he sees no signs of a wage-inflation spiral and expects price growth to slow from the second quarter of 2022.

Some of his colleagues on the 10-person Monetary Policy Council are less sure. Eugeniusz Gatnar wants monetary tightening to gradually begin, and -- along with two other MPC members -- voted to raise benchmark borrowing costs by 15 basis points in July. 

With Polish inflation reaching 5.4% from a year ago in August, bets have increased that the central bank will follow the interest-rate hikes already being implemented in the nearby Czech Republic and Hungary. The zloty recorded its biggest rally since April last week.

Even so, all 20 economists surveyed by Bloomberg predict the benchmark will be kept at a record-low 0.1% on Wednesday.

Glapinski’s comments lower the chance of a rate increase when the central bank releases new economic forecasts in November, but don’t rule it out completely, according to Santander Bank.

“Macroeconomic data and the course of the pandemic will determine MPC decisions,” analysts led by Piotr Bielski said in a note to clients.

MPC member Eryk Lon aligned alongside Glapinski’s dovish monetary-policy stance. 

“Neither this month, nor in October, should rates be raised,” he wrote in an article published Monday on the wgospodarce.pl website. “Doing so in these months could give the impression to bond investors that the inflation threat is so big that rates need to be raised even before seeing” updated economic projections due in November.

Elsewhere, Glapinski said zloty appreciation “doesn’t seem favorable” for the economy as “it would partially offset the effects of monetary accommodation.” The central bank has already scaled back its bond-buying program, but quantitative easing will only end once the bank decides to raise interest rates, he said.

©2021 Bloomberg L.P.

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