Poland’s “persistently” high inflation rate and solid economic-growth figures in the first quarter prompted policy makers to raise borrowing costs last week, central bank Governor Marek Belka said.
The Narodowy Bank Polski in Warsaw raised its main rate by a quarter-point to 4.75 percent on May 9. The bank’s policy remains “accommodative” and policy makers are ready to react if the economic outlook worsens, Belka said in an interview for the bank’s Obserwatorfinansowy.pl today.
The tightening came just before the European Commission raised its economic-growth forecast for Poland to 2.7 percent, the fastest seen this year in the European Union, citing domestic demand and public spending on the Euro 2012 soccer championship. The economy expanded 4.3 percent last year and was the only EU country to dodge a recession in 2009.
“First-quarter data confirmed our view that there won’t be a drastic, significant economic slowdown” in Poland, Belka said in the interview. “Companies are in good shape. Consumption has stayed at a good level. At the same time, we saw that the monthly figures weren’t showing a gradual fall in the inflation rate.”
The zloty traded at 4.295 per euro at 11:10 a.m. in Warsaw, down from 4.24 late Friday, making it the worst-performing emerging-market currency this month. The yield on the two-year government bond rose five basis points to 4.80 percent.
The May meeting was the first after the release of preliminary first-quarter data showing Poland’s economy expanded 3.5 percent. The statistics office will publish its official first-quarter GDP report on May 31.
While economic growth remains strong, inflation has remained above the central bank’s 2.5 percent target since October 2009.
“Inflation is bouncing around 4 percent, but the important thing is its stubborn persistence at this high level,” Belka said. “A monetary policy based on a direct inflation targeting must influence inflationary expectations. We had to send the appropriate signal and gradually increase its intensity.”
While investors “didn’t want to listen for quite some time,” Belka said, “now I hope they will pay close attention to our opinions and not just rely on their own judgment.”
Only nine of 31 economists surveyed by Bloomberg News predicted the rate increase last week.
The increase sent a “strong signal” that the central bank won’t tolerate elevated inflation and policy makers can now “return to a wait-and-see mode,” Adam Glapinski of the Monetary Policy Council was quoted today as saying by PAP newswire.
“My opinion is that we’ve done enough,” Glapinski said in an interview, according to PAP. “Rate increases can’t be ruled out. Certainly there’s no question of rate cuts in coming months.”