Polish Central Bank Should Focus on Growth, Wisniewski Says

Polish monetary policy should focus on economic growth rather than inflation as investors value financial stability the most, said Jacek Wisniewski, a member of the Prime Minister’s Economic Advisers Council.

“The international credibility of countries is defined by their fiscal situation and solvency these days, so the central bank has to focus more on growth than on cutting inflation for the country’s economic stability,” Wisniewski, who is also Warsaw-based Raiffeisen Brokers’ Director, said in an interview in Warsaw on June 25. “There’s no need to raise Polish borrowing costs more.”

The Narodowy Bank Polski last month raised its benchmark seven-day rate a quarter-point to 4.75 percent to combat inflation, becoming the European Union’s only central bank to increase borrowing costs this year. Policy makers left the rate unchanged this month and warned that more monetary tightening may be needed if price growth doesn’t slow and the economy avoids a steep slowdown.

Poland’s gross domestic product, the largest among the European Union’s eastern members, will grow 2.7 percent this year after a 4.3 percent advance in 2011, the fastest pace in the trading bloc, according to the European Commission.

Default Swaps

The cost of insuring Polish debt for five years using credit-default swaps has dropped 61 basis points this year to 227, data compiled by Bloomberg show. Falling credit-default swaps signal improving perception of creditworthiness. The 10-year government bond yield reached a three-year low of 5.13 percent June 21 and traded at 5.18 percent at 1 p.m. in Warsaw.

Since the rate meeting three weeks ago, inflation unexpectedly decelerated to 3.6 percent in May, the slowest in 15 months, while jobs growth at companies with more than nine workers held steady at 0.3 percent and wages rose 3.8 percent, missing economist forecasts. Retail sales grew 7.7 percent, less than the 10 percent average advance far this year and down from an almost 14 percent increase last May.

Monetary Policy Council member Andrzej Bratkowski said June 25 he sees no need to raise rates and warned that GDP expansion slowing to less than 2 percent “would complicate fiscal consolidation that depends on economic growth to some degree, so one has to be cautious not to harm that growth additionally,” according to the state-owned news service PAP.

Bratkowski wants to discuss possible monetary easing at the central bank’s rate meeting next week, he told TVN CNBC in an interview yesterday.

Lower Rates

Next year’s draft budget assumes the benchmark interest rate will be half a percentage point lower than at present. “Following the global slowdown and commodities prices drop, inflation in Poland will also drop, driving expectations for lower interest rates,” Wisniewski said. “The government’s 2013 budget draft expresses that logic.”

The World Bank, which predicts Poland’s economy will grow 2.9 percent this year, said today that monetary policy in the EU’s eastern members “should continue to be accommodative well into 2013 in order to keep debt-service costs low, support asset prices, encourage investment, and avert a possible slide into deflation.”

May’s rate increase “may have been premature and amid an economic slowdown, declining inflation and fiscal consolidation, monetary policy could provide support for the economy,” the lender’s Warsaw-based chief economist Ewa Korzyc was cited by the PAP newswire as saying today.

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