March 7 (Bloomberg) -- Poland shouldn’t accelerate interest-rate increases because inflation is being driven by global prices and tax increases while government budget cuts may hurt economic growth, central banker Zyta Gilowska said.
The Narodowy Bank Polski left the benchmark seven-day rate unchanged at 3.75 percent this month after raising it by a quarter point in January, its first increase since 2008. Central bank Governor Marek Belka said last week that price growth will slow in the second half after inflation quickened to a 20-month high of 3.8 percent in January.
“Monetary policy has no impact on the main causes of inflation,” which can be traced to world commodity prices and government increases in value-added and excise taxes, Gilowska said in a March 5 interview. “There is no justification for speeding up rate increases in such a situation.”
Policy makers around the world are struggling to contain accelerating inflation, driven by surging food and fuel prices. The European Central Bank may raise interest rates next month, President Jean-Claude Trichet said on March 2.
The zloty, which held its gains after Polish central bankers opted against raising rates the same day, retreated to a week-low after Trichet’s comments.
“The reaction was short-term, but not sustained,” Gilowska said. “It’s difficult to make the case for drastic zloty depreciation as our currency has the potential to appreciate on productivity gains, since we have low wage pressure correlated with high unemployment.”
The Polish central bank has adopted a “cautious” rate policy that has had “no direct impact” on the zloty’s exchange rate, Gilowska said.
Poland’s 10-member Monetary Policy Council rejected motions to increase interest rates at five monthly meetings from August to December. Gilowska supported a motion to increase rates by 50 basis points in August, then switched sides and opposed rate increases at subsequent meetings, according to voting records published today by the central bank.
Voting tallies for the January meeting, when rate setters backed a quarter-point tightening, may be published no earlier than March 20, according to the central bank law.
Three-month forward-rate agreements that investors use to fix interest rate costs or wager on changes in borrowing costs dropped 8 basis points to 4.50 percent after last week’s Polish rate decision. The agreements rose to 4.55 percent after Trichet’s March 2 comments and stayed unchanged today.
The zloty traded at 3.9772 per euro at 1:55 p.m. in Warsaw, little changed from 3.979 on Friday.
Central bankers should avoid“hasty reactions” as the government plans to narrow the budget deficit from an estimated 7.9 percent of gross domestic product last year, she said.
Poland will narrow the shortfall to the European Union limit of 3 percent of gross domestic product next year, Finance Minister Jacek Rostowski said on March 2. Two days later, Prime Minister Donald Tusk said the country would meet the goal in 2013.
“Deficit reduction at that pace could cause serious trouble for the economy and we’d see what a real recession means,” Gilowska said. “The plan is unrealistic. Still, some genuine budget consolidation has to be undertaken.”
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