Zloty Gains No Easing Trigger for Bratkowski as Economy Recovers

Polish central banker Andrzej Bratkowski, who was the first to call for the start of an easing cycle in 2012, ruled out interest-rate cuts in response to a stronger zloty as inflation is set to pick up in the coming months.

The European Union’s largest eastern economy will expand 4.6 percent to 4.8 percent next year, accelerating “significantly” from 3.1 percent to 3.3 percent projected for 2015, Bratkowski said on Monday. With improvement in both consumption and exports, there is “a chance” that inflation will reach the central bank’s 2.5 percent target in the third quarter of 2016, he said.

Bratkowski is putting himself at odds with fellow rate setters Jerzy Osiatynski and Governor Marek Belka, who’ve linked future policy decisions to the zloty’s performance as the European Central Bank’s bond purchases put the Polish currency under pressure to strengthen. The zloty’s gains are bedeviling plans by policy makers to end easing after lowering their benchmark by a half-point on March 4 to counter record deflation and shield the national currency.

“I don’t share the opinion that further zloty appreciation is an argument to restart rate cuts,” Bratkowski said on his personal website forward-looking.pl. “Especially since the Monetary Policy Council has pledged to end the easing cycle while energy and food prices are stabilizing, which in the coming months should allow inflation to turn positive in month-on-month terms.”

The zloty, which last week touched the strongest level against the euro since January 2013, traded 0.2 percent stronger against the 19-member common currency at 11:51 a.m. in Warsaw.

Two Conditions

Another growth slowdown in the euro area, a destination for more than half of Poland’s exports, coupled with an unexpectedly strong downturn in investment would amount to “the only justification” for putting monetary easing back on the agenda, he said.

Bratkowski has been the most outspoken proponent of deep rate cuts as the 10-person council grapples with eight months of falling prices. Policy makers have missed their inflation target for more than two years.

Deflation will likely continue until the third quarter, Bratkowski said.

The situation will start to improve as a decline in investment reverses in the latter part of this year and growth gains momentum in 2016, according to Bratkowski.

Slight Benefits

“This economic scenario significantly decreases the benefit of any further interest-rate cuts,” he said. “While they would prevent the zloty strengthening and shorten the period of deflation, there would be no meaningful impact on the pace of expansion in 2015.”

At the same time, with growth poised for “a strong acceleration” next year, the council would have to move “relatively quickly” to raise rates, which in turn could boost the zloty and throw the economy off balance, according to Bratkowski.

“Zloty strengthening right now appears to carry less risk,” he said. “There’s still plenty of room for appreciation that doesn’t put export profitability at risk, while the growth improvement in the European Union will support an increase in exports.”

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