Polish Monetary Policy Shouldn’t Be Static Too Long

Poland’s central bank shouldn’t leave monetary policy “static for too long,” central banker Zyta Gilowska said, joining other policy makers in indicating interest rates may be increased later this year.

“We can’t afford to keep monetary policy static for too long,” Gilowska said in an interview yesterday. “I favor a dynamic and flexible approach. For the past two months, we’ve been discussing the instruments of such a policy quite intensively, because our decisions must take into account that the transmission of monetary signals may take up to six quarters.”

The comment came a week after policy makers voted to leave the seven-day reference rate at 3.5 percent for a 14th month as inflation slowed to a three-year low of 2 percent. Economic growth accelerated to an annual 3.5 percent in the second quarter after a 3 percent expansion in the first three months of the year, the Central Statistical Office said yesterday.

The data strengthened expectations for a rate increase. Besides Gilowska, five other members of the 10-person panel said yesterday that there is a growing possibility monetary policy will be tightened in coming months.

Forward-rate agreements show that investors have stepped up rate-increase expectations. Three-month FRA’s are trading 30 basis points above the current three-month Warsaw interbank offered rate, according to data compiled by Bloomberg.

‘Significantly Slow’

A rate increase of as much as 75 basis points won’t “significantly slow” economic growth, Andrzej Bratkowski said in an interview with the PAP news agency yesterday. His comments were the strongest on rates among policy makers and suggest “the probability of a rate increase in the near-term is more than 50 percent,” said Mateusz Szczurek, chief economist at ING Bank Slaski.

Anna Zielinska-Glebocka, another member of the council, said a motion on raising rates was already voted on this month.

“The Polish economy is showing clear signals of acceleration,” Gilowska said in Warsaw, predicting third-quarter growth may be faster than in the second and the expansion may exceed 3.5 percent for the full year.

The inflation target of 2.5 percent is “safe” this year, while the path of inflation next year “is uncertain,” she said.

‘Declining Expectations’

“We still think an interest-rate increase doesn’t make sense,” Szczurek said, pointing to “declining expectations on global growth.”

Since the council members’ comments “cannot be disregarded, Szczurek said a 25 basis-point increase may be supported in October or even in September” by six members, including Gilowska, Bratkowski, Zielinska-Glebocka as well as by Adam Glapinski, Andrzej Rzonca and Elzbieta Chojna-Duch or Jerzy Hausner.

Six votes are needed to pass the increase. A basis point is one hundredth of a percentage point.

Marek Belka, the governor of the central bank and chairman of the panel, has the power to break potential ties in voting.