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Polish Central Banker Belka Says Inflation Shouldn't Exceed Target By Much
Polish inflation shouldn’t exceed the central bank’s target “by much” as an increase in the value-added tax from next year boost consumer-price growth by 0.3 percentage points, Governor Marek Belka said.
The full effects of the raising of the VAT rate on non-food items by one percentage point to 23 percent are still not known, which has left the bank “in a wait-and-see mode” on future policy decisions, Belka said at a financial conference in Bucharest today.
“Inflation should not exceed the target by much,” he said. Consumer prices rose 2 percent in July, compared with the bank’s target of 2.5 percent.
The government is raising taxes and keeping expenditures in check to hold public debt below 55 percent of gross domestic product and avoid mandatory spending cuts. Poland is required to bring the gap in line with the European Union limit of 3 percent of GDP by 2012 after it widened to 7.1 percent last year as GDP growth slowed to 1.8 percent, the lowest in almost a decade.
The Cabinet gave its preliminary backing to the budget yesterday capping the central government deficit at 40.2 billion zloty ($13.2 billion), Labor Minister Jolanta Fedak was quoted as saying by PAP newswire. That’s almost 5 billion zloty less than in a four-year fiscal plan approved Aug. 6 and 8 billion zloty below the latest forecast for 2010.
Steady Rates
The Narodowy Bank Polski left the seven-day reference rate at 3.5 percent for a 14th month on Aug. 24 and Belka said today that foreign-currency loans are “restricting our monetary policy, interest rates and monetary transmission.”
“This is the biggest fear of an economy like mine in this current global economy,” he said.
Households and companies in Poland, the only European Union economy to avoid a recession last year, increased their reliance on foreign-currency loans in the past two years. Swiss franc- denominated loans accounted for 59 percent of all mortgages at the end of March, according to the country’s banking regulator. rebounding demand encouraged companies to rebuild inventories.
GDP Surprises
GDP rose 3.5 percent from a year earlier, compared with 3 percent in the previous quarter, the Warsaw-based Central Statistical Office said on Aug. 30. The result exceeded the 3.2 percent median estimate of 11 economists in a Bloomberg survey.
Poland, the only European Union member to avoid a recession in 2009, may outperform again this year, growing 2.7 percent according to a European Commission forecast, compared with an average of 1 percent for the EU. Reviving demand in the euro area is boosting Polish exports, encouraging companies to start hiring and helping spur consumer demand.
Cutting the deficit is also a key step for the country to adopt the euro. Belka said he hoped the currency switch is “not too far from now,” though “there is still homework to do” in meeting the EU’s criteria on debt, budgets, currency stability and inflation.
To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net
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