Poland’s Newest Dove Preaches Economy First, Then Inflation

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  • Sura says returning economy to ‘balanced development’ is key
  • Inflation picked up, growth rebounded after slowdown last year

The latest addition to Poland’s central bank wants policy makers to put the economy first.

Nurturing growth needs to remain a priority even after the European Union’s biggest eastern economy surged out of the blocks to start the year, according to Rafal Sura, trained as a legal scholar and a virtual unknown before being appointed in November to replace Marek Chrzanowski on the Monetary Policy Council.

Rafal Sura

Source: Poland Central Bank

Speaking in his first interview with an international news organization since taking office, Sura, 37, ruled out any monetary tightening, expressing confidence that the recent burst of inflation is only temporary and poses no risk of breaching the central bank’s target for longer.

“I personally don’t think that raising interest rates in the coming quarters would be necessary,” Sura said in Warsaw. “What’s most significant right now is for the economy to return to the path of balanced development.”

By focusing on growth, Sura is indicating he’ll lean to the dovish side of Poland’s policy debate. Governor Adam Glapinski has said a discussion on monetary tightening may start already in 2017, even though the first rate increase since 2012 is only probable next year.

Derivatives traders have scaled back their wagers on changes in monetary policy, which has been on pause since easing ended in March 2015. Zloty forward-rate agreements, an indication of rate expectations, now show no moves over the next 12 months. The Polish currency is the second-best performer this year in developing Europe with a gain of about 2 percent against the euro. It traded little changed on Tuesday in Warsaw.

Not Now

“I would like the council to deal with the issue of tightening, but not necessarily in 2017,” Sura said.

A law professor before his appointment, Sura was also a judge on Poland’s State Tribunal, a special entity empowered to rule on constitutional questions and review activities of officials. His doctorate focused on the collection of bank debts.

If Sura’s tone is any indication, the central bank is taking a slew of recent data surprises in stride. The Polish economy has been fast to shake off last year’s slowdown: in January, growth in retail sales soared to near the fastest in five years and industrial output surged the most since 2011.

Inflation Risks?

As the outlook for the economy improves, concerns have emerged instead over the pace of inflation. Price growth accelerated to 1.8 percent after the nation’s longest deflation, reaching the central bank’s target range for the first time in four years. The government and the central bank forecast inflation at 1.3 percent at the end of this year and 1.5 percent in 2018.

Although that’s pushed the 1.5 percent benchmark rate below the consumer-price index for the first time in six years, Sura said the effect is “temporary” and doesn’t amount to a Polish version of monetary easing. While inflation breached the 1.5 percent lower end of the central bank’s target range in January, it’s been below its goal of 2.5 percent for more than four years.

Inflation will stay around the target in the coming months, kept up by higher costs of commodities or factors beyond the central bank’s control, he said. Price growth will also be supported by accelerating wage increases and faster-than-anticipated economic gains, according to Sura.

“The council is vigilantly monitoring the situation, and that’s why there are no concerns about a sudden and sustained acceleration of inflation above the target,” he said.

Investment, Consumption

Polish companies have enough cash, meaning there’s no reason for the central bank to take steps to stimulate money supply to boost investment, according to Sura. Private consumption, driven by higher expenditure on welfare, will remain the main pillar of economic growth, he said.

Capital spending, meanwhile, will recover with increased inflows of the EU’s assistance funds, Sura said. Investor confidence could also “be positively influenced” by government actions that ensure a stable regulatory environment for business activity, he said.

The economy, which had its first sub-3 percent gain since 2013 last year, “has a chance to accelerate” to 3.6 percent, according to Sura, who sees the end of the second quarter as “a noticeable turning point.” That would put growth on track to meet the government’s forecast, and would beat the median estimate of 3 percent in a Bloomberg survey.

The last thing to worry about is inflation.

“Available forecasts and data indicate no risk inflation will exceed the target in the coming months,” Sura said.