Polish Rate-Hike Talk Returns as Mortgage Surge Worries Top Hawk

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Don’t write off talk of a Polish interest-rate hike just yet.

While record-low borrowing costs are into their fifth year in the European Union’s biggest eastern economy, some at the central bank don’t want to join the global push toward looser monetary policy.

Eugeniusz Gatnar, who leads a hawkish minority on the bank’s 10-strong rate-setting panel, reckons next year’s inflation forecasts may be short of the mark as government handouts drive consumer spending and the economy improves in neighboring Germany -- the country’s top trading partner.

He also worries that too many Poles are being tempted to take out home loans they may struggle to pay back if rates are raised down the line.

“It’s quite probable inflation will quicken as domestic pro-inflationary factors are stronger than disinflationary ones coming from abroad,” Gatnar said this week in an interview. “If inflation doesn’t slow to the target next year, which to me is quite likely, some members of the Monetary Policy Council will return to the rate-increase scenario.”

For now, the latest projections -- which have inflation easing from 3.5% or more to 2.9% by end-2020 -- justify the bank’s wait-and-see bias, according to Gatnar. Governor Adam Glapinski has repeatedly pledged to keep the benchmark unchanged at 1.5% until 2022. The MPC rejected a motion to lower it further this month -- the third straight meeting where such a proposal has been made.

But with Germany avoiding a recession and business surveys signaling an uptick, Poland’s economy could outperform next year, pulling inflation higher.

Gatnar backs an idea by fellow MPC member Lukasz Hardt to raise rates by less than the usual quarter-point, calling such a move a “very important signal to creditors” who “should bear in mind that the cost of money could increase.”

He has similar sentiments toward Polish borrowers. Negative real interest rates --- a concern flagged this week by outgoing MPC member Jerzy Osiatynski -- are encouraging a credit binge. Mortgages, in particular, have surged, jumping more than 14% in the year through September.

Poland is still dealing with the fallout from its last mortgage crisis, when loans were issued in Swiss francs and subsequently became cripplingly expensive for some homeowners.

“I wish borrowers were constantly reminded that the 1.5% rate isn’t forever,” Gatnar said. “I’m very worried people pushed into borrowing are being misled by low costs, good labor-market conditions and higher incomes.”

The dangers of negative real interest rates bolster Gatnar’s argument for higher benchmark borrowing costs. He also lists tax cuts for young people, higher pensions and planned increases to the minimum wage as reasons why the central bank should be pondering a hike.

“The latest projections make any talk about rate cuts entirely groundless,” he said.

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net;Barbara Sladkowska in Warsaw at bsladkowska@bloomberg.net

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

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