Adam Glapinski, a member of the Polish central bank’s rate-setting Monetary Policy Council, comments on inflation and the outlook for interest rates.
Glapinski made his remarks yesterday in a phone interview in Warsaw.
On monetary policy:
“We should be consistent in sticking to the scenario we accepted at the beginning of the year, which assumed taking steps to cool down the economy as needed, with each step preceded by very careful observation, because it’s very easy to overreact. The current situation is characterized by halting growth and high inflation, the latter driven by factors that we are powerless to influence. What we have to keep in mind is that high interest rates could slow the economy without curbing inflation, which is something we can’t allow to happen.
‘‘My position is that the Monetary Policy Council can’t take decisions based on monthly data and must remember its actions will affect the economy over a time horizon of about two years. This means the March inflation reading can’t dictate a change of monetary policy parameters. I’ll seek to convince other policy makers not to submit a rate-increase motion in May and if there is one, I’ll vote against it.
‘‘A rate increase in May would be a serious mistake for several reasons. First of all, we shouldn’t base our decision-making on monthly data. The March inflation data only confirmed predictions that prices would grow in the first half of the year, so nothing has happened to justify a change in our monetary-policy scenario.
‘‘If we raise rates in May, we’ll simply be joining the panic about March inflation, and the Monetary Policy Council can’t allow itself to be swayed by panic, especially by a senseless one. We’d just be providing additional arguments to intensify the panic. Finally, a rate increase in May would only fuel inflationary expectations, which are already quite high.”
On the central bank’s “action scenario”:
“This is the first time I’ve spoken so openly, but the Monetary Policy Council can’t give in to pressure from the market; nothing has happened to make us change the action scenario we adopted for this year. That scenario called for from two and four rate increases, each by a quarter point, through the end of the year, and I see no reason why we should change that.
‘‘The Monetary Policy Council should maintain a stable parity in relation to the European Central Bank’s official interest rates; we anticipated the ECB with the first rate increase, but there’s no reason to move preemptively again.”
“The March inflation rate exceeded most forecasts, but you have to remember that inflation accelerating in the first half of the year shouldn’t come as a surprise to anybody. The trend was foreseen in the central bank inflation projections and was reinforced by price speculation on global food and energy markets. These factors are external and beyond our control.
‘‘What’s more, the trend is expected to reverse in the second half of the year. Not only will price growth slow, but food prices may actually fall. The local contributor to higher prices, which was the value-added tax increase at the beginning of the year, will fade out in the second half of the year and provide another argument for slower inflation.
‘‘While the high inflation rate boosts inflationary expectations, this is a purely psychological effect because the economy isn’t generating any price pressure. There hasn’t been a recovery in private investment and business confidence remains low.
‘‘On the labor market, we have unemployment of more than 13 percent and very weak labor unions, which gives little reason for concern about wage demands. I don’t see any second-round effects or even the possibility that they could appear.
‘‘As for inflation, I see it below the upper end of our target range by the end of this year.’’
On the economy:
‘‘Poland’s economy, powered by Germany’s recovery, remains in a phase of fragile and halting growth and is vulnerable to many risks, including the high degree of uncertainty on global markets. We will be very fortunate to end the year with economic growth of 4 percent, but I have serious doubts we can achieve that.’’