Polish GDP Over 3.5% May Be Signal for Rates, Rzonca Says

Poland’s central bank would see a signal to raise interest rates if forecasts point to sustained economic growth of more than 3.5 percent, Monetary Policy Council member Andrzej Rzonca said.

“The current rate is appropriate for now and until the end of the third quarter,” Rzonca said in an interview in Warsaw yesterday. “I’m not saying the rate should be raised immediately in the fourth quarter. I just can’t rule the need for an increase before the end of the year.”

Economic recovery in Poland lends weight to the comments by Rzonca, who backed only three of the central bank’s eight rate cuts in 2012 and 2013. Growth in the European Union’s biggest eastern economy will reach 3.6 percent this year after 1.6 percent last year, the least since 2009, the central bank projected in March.

The Warsaw-based Narodowy Bank Polski has kept its benchmark interest rate at a record low for nine months and plans to leave it unchanged at least through September, though it may review this guidance after the next inflation projection in July, according to Belka.

“If GDP growth keeps accelerating and forecasts indicate sustained expansion of more than 3.5 percent in the medium term, it would be a signal for me to begin monetary tightening,” Rzonca said.

The zloty rose less than 0.1 percent to 4.1887 per euro at 4:30 p.m. in Warsaw, paring its month-to-date drop to 0.5 percent, the second-worst performance among 14 developing Europe currencies after the Russian ruble.

Ukraine Impact

While the conflict between neighboring Ukraine and Russia has a “limited” impact on Poland’s economy, Rzonca said, concern about the fallout persuaded him to back extending the central bank’s rate guidance for another quarter in March.

Poland’s gross domestic product expanded at an annual pace of 3 percent in the first quarter and that rate will accelerate in the second quarter, Belka said last week.

The Ukraine crisis has “mixed” consequences as the Russian embargo on the Polish meat and declining Polish exports to Russia may curb inflation, while an increase in energy prices or a weakening of the zloty could have the opposite effect, Rzonca said.

“The conflict in Ukraine isn’t the only problem for Polish monetary policy,” he said. “The expansive monetary policy of major central banks and possible market turbulence are the real challenge.”

Poland’s central bank is preparing measures to deal with market volatility amid low global inflation and persistently slow economic growth, Belka said at the International Monetary Fund’s spring meetings in Washington on April 13.

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