Poland's c.bank should mull rate hike if CPI hits 2.5% target -c.banker

Credit: REUTERS/Kacper Pempel

By Pawel Florkiewicz

WARSAW, May 27 (Reuters) - Poland's central bank should consider an interest rate hike at the end of this year if inflation exceeds its 2.5% target and continues to grow, said Eugeniusz Gatnar, one of few hawkish members of the ten-strong rate-setting panel.

Poland's benchmark interest rate has been at a record low of 1.5 percent since March 2015.

Polish inflation stood at 2.2% in April, well above analysts' estimates of 1.75%. Poland's central bank has an inflation target of 2.5%, plus or minus one percentage point.

"Rates may remain unchanged as long as inflation remains moderate, as long as it moves in the lower band of the target range. The Polish economy is developing very well and it can be seen that the current level of interest rates is beneficial for the economy," he said.

"If the inflation target is exceeded and inflation continues to grow, we should consider raising interest rates, which are quite low compared to other Central and Eastern European countries," Gatnar told Reuters.

Gatnar also said that if food prices grow, the inflation target could be reached in June.

"... due to the base effect, a slight inflation decline is possible in the third quarter, but then prices should rebound and at the end of the year we will enter the upper band of the target range," said the rate-setter.

Earlier in May the central bank governor Adam Glapinski said that even though recently inflation accelerated faster than analysts and the central bank had expected, there is no need to change interest rates until the end of the Monetary Policy Council's (MPC) term in 2022.

"I do not agree with the view that interest rates may remain at the current level until the end of the MPC's current term," said Gatnar, who considers the government's fiscal action package as a pro-inflationary factor.

Earlier this year the ruling Law and Justice (PiS) party vowed to increase public spending by up to $10 billion a year, raising child subsidies, offering an extra payment to pensioners and improving transport services while also cutting taxes.

"It seems that the introduction of a fiscal package, worth around two percent of GDP, should accelerate inflation in Poland. However, I do not expect it to be a sharp increase, because the whole package is spread over time", Gatnar added.

(Reporting by Pawel Florkiewicz; Editing by Agnieszka Barteczko and Toby Chopra)

((warsaw.newsroom@thomsonreuters.com; +48 22 6539700; Reuters Messaging: warsaw.newsroom.reuters.com@thomsonreuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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