Poland’s Bratkowski Sees Rate Increases More Likely Than Cuts

Andrzej Bratkowski, a member of the Polish central bank’s Monetary Policy Council, said interest-rate increases are more likely than cuts because of the pace of inflation .

Bratkowski was speaking in an interview yesterday in Warsaw.

On inflation:

“High inflation is still the main argument against rate cuts. I don’t expect a strong deceleration in price growth. Even with the economy expanding at a 3 percent rate, there’s not much disinflation pressure.

‘‘Right now the drag on economic growth is fast inflation, which curbs growth of real incomes and hurts consumption. For the time being, inflation risks substantially outweigh the risk of slower economic growth.

‘‘I wouldn’t say our present situation is too bad, both with regard to inflation and economic growth. That doesn’t mean we’re in great shape. My biggest concern is inflation. I don’t think we’ll be seeing consumer-price growth below 3.5 percent this year, although it could get close to that level in December even with a weak zloty.

‘‘I don’t expect inflation will return to the 2.5 percent target faster than the central bank’s forecast.”

On the rate outlook:

“I don’t see any scope or need for interest-rate cuts. They would be ineffective in stimulating growth and would provide extra incentive to speculate against the zloty.

‘‘In our latest statement, we reiterated the possibility of monetary tightening and that rate increases are still more likely than cuts. The dip in economic growth is going to be relatively shallow and short, so our aim was to restrain the wildly fluctuating expectations on the markets.

‘‘Nothing has happened in either the European or Polish economies that justifies current rate-cut expectations. If economic growth does slow to less than 2.5 percent and the zloty begins to appreciate, then we could start to consider monetary easing.

‘‘In the short term, we should adopt a wait-and-see stance that may stretch into the beginning of next year. The probability that we will see a rebound in GDP growth after two or three quarters is greater than the likelihood that the slowdown will continue.

‘‘That means we may have to consider a rate increase, although it’s more likely that we’re facing a prolonged period with rates set at present levels. That won’t mean a continuation of ‘wait-and-see,’ which implies the possibility of a move in either direction. Quite simply, we’ll be dealing with less uncertainty and a clearer situation that may not demand any action from us.’’

On the currency:

‘‘The only thing that could bring the inflation rate down faster is the zloty. So far it’s been making our job harder. However, I think the situation will return to normal and the exchange rate will get back to a reasonable level closer to 4 per euro than 4.3. This means the zloty has some room to start working in our favor. Nevertheless, inflation will slow only gradually.

‘‘The orthodox approach to a free-floating currency hasn’t worked, in my view. The main purpose of intervention is to reduce fluctuations of the exchange rate, not to defend a particular level.

‘‘It would be dangerous to prop up the zloty as a way to curb inflation and that wasn’t the point of intervening. Monetary policy shouldn’t be guided by the exchange rate so long as we don’t see an escalation of external events and the zloty doesn’t become a destabilizing force.

‘‘I think the central bank’s interventions to date have been effective, because they succeeded in calming market sentiment and making the zloty less volatile.’’

On public finances:

‘‘There isn’t any pressure for immediate and drastic spending cuts. It’s possible the deficit will narrow to 3 percent of GDP next year if we get economic growth of at least 3 percent.

‘‘The fiscal problem can be solved largely by restraining spending growth rather than by radical cuts. I don’t see any need to amend the 2012 budget bill. The deficit limit shouldn’t be breached even if economic growth falls short of the 4 percent forecast.”

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