Poland May Prolong Rate Pause as Glapinski Sees Halt to 2017

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Poland may prolong a period of steady interest rates into 2017 if policy makers take their cue from economic forecasts slated for release next month, according to central banker Adam Glapinski.

“There won’t be any signal for any substantial change in monetary policy coming from the projection,” Glapinski, 65, said in an interview in Warsaw on June 9. “This obviously extends the phase of stable rates in Poland and means that they could be left at a record low throughout 2016 or even longer.”

The outlook offers the clearest clue to Poland’s rate path after the central bank announced an end to its easing cycle in March, when it cut the benchmark by half a point. While the rate-setting council has since been reluctant to give any time frame for a possible change in borrowing costs, Governor Marek Belka said last week that “something extraordinary” would have to happen to modify the stance.

Glapinski, a candidate to succeed Belka next year, spoke as forward-rate agreements indicated growing bets for a rate increase within 12 months, reflecting investor confidence in the European Union’s biggest eastern economy. New staff projections will probably show inflation barely accelerating near the lower end of the central bank’s tolerance range of 1.5 percent to 3.5 percent in 2017 and economic growth hovering “somewhat” above 3.5 percent in the next two years, according to Glapinski.

Twelve-month forward-rate agreements traded 22 basis points above the Warsaw interbank offered rate on Thursday, a drop of one basis point and an indication that the benchmark is more likely to rise than fall. The yield on the government’s two-year bond was unchanged at 1.83 percent.

Policy Horizon

The policy trajectory outlined by Glapinski extends beyond the tenure of most members on the council. Glapinski is among eight of the 10 members who’ll leave the panel early next year.

His departure may only be temporary though, with Polish publications including Puls Biznesu and Wprost reporting that he’s the top candidate to succeed Belka.

Glapinski received a boost with the surprise victory of opposition Law and Justice candidate Andrzej Duda in a presidential election last month. Glapinski is a long-time ally of Law and Justice and was nominated to the Council by President Lech Kaczynski, who died in a plane crash five years ago.

Belka’s Replacement

Duda will name the next governor of the central bank by mid-2016. Candidates to the panel are appointed by the president and lower and upper chambers of the parliament, with each allowed three nominations.

Glapinski declined to comment on speculation about future rate setters or the impact that the new composition of the Council may have on monetary policy.

The limited potential for consumer demand to drive growth is acting as a restraint on the Polish economy, according to Glapinski.

Household spending grew 3.1 percent from a year earlier in the first quarter, compared with increases of 3 percent and 3.2 percent in the previous three-month periods, suggesting that individual consumption “might have reached its maximum,” he said.

Despite positive assessments of the situation on the labor market, “unemployment is hovering around 11 percent and employers aren’t planning any wage increases, which, combined with diminishing deflation, may soon limit households’ disposable income,” Glapinski said.

Economic Outlook

That doesn’t bode well for an economy that’s proven to be resilient to its longest bout of deflation on record. Gross domestic product expanded 3.4 percent in 2014, double the pace of 2013. The government targets 3.4 percent growth also this year.

Polish deflation eased to 0.7 percent from a year earlier in May from 1.1 percent in April, according to the median estimate of 22 economists in a Bloomberg survey. The statistics office will report the data on June 15.

While Poland may benefit from other growth catalysts, including further investment gains, new EU budget funds and long-term improvement of the euro-area economy, the impact won’t be enough “to prompt any extraordinary moves by policy makers at least for the next two years.”

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