Rate Pause Doubted by Lon for 2018 as Polish Central Bank Splits

  • ‘Hard to predict’ if rates can be held beyond 2017, Lon says
  • Governor has signaled record pause may continue into next year

Governor Adam Glapinski has easily mustered a majority on Poland’s central bank to keep extending its longest-ever pause in interest rates through this year. For now, fewer policy makers may be willing to follow his lead into 2018.

While a slowdown in consumer-price growth last month confirmed the central bank’s view of subdued inflationary pressure, Eryk Lon is siding with several fellow members of the Monetary Policy Council in questioning plans to leave the benchmark on hold for longer.

“One can’t rule out that rates will be kept unchanged next year too,” Lon said in an interview in Warsaw. “However, it’s hard to predict now.”

Once among the main supporters of additional monetary easing, Lon has embraced policy restraint after joining the rate-setting panel at the start of last year. Both through a record stretch of deflation and a pickup in price growth that started in late 2016, Poland’s reference rate has remained at a historical low of 1.5 percent since March 2015.

“Changes in the benchmark rate probably won’t be required this year as, in my opinion, inflationary pressure won’t be strong enough to make a rate increase indispensable,” Lon said.

‘Polish Capital’

Lon is lining up behind other policy makers who spoke since this month’s rate meeting. None of them saw the possibility of rates held as long as suggested by Glapinski, who reiterated two weeks ago that -- given the central bank’s latest inflation projection -- borrowing costs could stay unchanged through 2018.

Among the 10 members of the policy council, the following central bankers spoke about possible tightening since the panel last met on April 5:

  • Glapinski at a news conference: “This year, I don’t see any rate increases. Personally I would also favor keeping borrowing costs unchanged next year”
  • Jerzy Zyzynski in an interview with PAP: “Increasing the rate this year wouldn’t serve any purpose because lending is still weak ”
  • Rafal Sura in an interview with Reuters: “Poland’s central bank is likely to keep its benchmark rate unchanged until at least the end of the first quarter of 2018”
  • Grazyna Ancyparowicz in an interview with Bloomberg: “One can’t rule out that a wait-and-see bias will be extended to the first half of 2018, or longer”

Last month, the central bank revised its projection for price growth to 2 percent this year and next, still lagging behind its 2.5 percent target in 2019. Driven by a global acceleration in food and fuel costs, the annual price index in Poland slowed to 2 percent in March after soaring to a four-year high of 2.2 percent a month earlier.

Lon distanced himself from the bank’s inflation outlook, predicting “less dynamic price growth.” But he believes its forecast for economic growth is “justified.” Expansion in the European Union’s largest eastern economy will accelerate to 3.7 percent this year from 2.8 percent in 2016, and then slow to 3.3 percent next year and 3.2 percent in 2019, according to the National Bank of Poland.

While an acceleration of economic expansion is something to be “desired,” Lon said he wants the benefits of economic growth “to be apportioned relatively fairly” in a way that “in the highest degree” benefits businesses controlled by “Polish capital.”