Do-Nothing Central Bank Digs In on Rates as Poland Booms

  • Polish benchmark rate kept on hold, in line with all forecasts
  • Policy makers have paused on rates since a cut in March 2015

Poland’s central bank isn’t going off script.

An economic surge last quarter, compounded by faster-than-forecast core inflation and months of gains in the zloty, put the spotlight on the Monetary Policy Council’s commitment to its longest-ever pause in interest rates. But after keeping the seven-day reference rate at a record low of 1.5 percent, Governor Adam Glapinski saw a long wait before an increase in borrowing costs could be warranted.

“We have a fast economic growth rate without signs of imbalances or bubbles, and moderate wage growth,” Glapinski said after the meeting in Warsaw. “In my view, there may not be a need to raise interest rates until the end of 2018.”

Policy inaction may increasingly become a harder sell with an economy firing on all cylinders as price pressures mount. Until the last meeting, data conformed to the central bank’s base scenario that assumed no need for higher borrowing costs. Its benchmark, last raised five years ago, has been on hold since a cut in March 2015 during the nation’s record stretch of deflation.

Speaking alongside Glapinski on Wednesday, his fellow policy makers Grazyna Ancyparowicz and Jerzy Zyzynski echoed the governor’s stance on keeping rates stable. Glapinski said Polish real rates may stay negative for “some time.”

Glapinski: may not need rate rise until end of 2018.

Source: Narodowy Bank Polski

The yield on Poland’s 10-year bond extended its drop during the news briefing to four basis points after trading one basis point lower before its start. Forward-rate agreements, derivatives used to bet on rate levels, show investors don’t price in a full quarter point increase until the second half of 2018.

“We worry the policy mix may provide strong growth impulses in coming quarters and the MPC may be forced to catch up with hikes in the second half of 2018 and 2019,” said Rafal Benecki, chief economist at ING Bank Slaski SA in Warsaw.

  • The policy council was forecast to stand pat on Wednesday by all 32 economists surveyed by Bloomberg. Most central bankers have so far ruled out any monetary tightening this year. Glapinski said on Wednesday that “some” of his colleagues expect a change in rates in mid-2018
  • Gross domestic product expanded an annual 4 percent in the first three months of 2017, faster than forecast, after a gain of only 2.5 percent in the previous quarter. The central bank estimated growth at 3.3 percent in January-March
  • The zloty has surged more than 5 percent against euro and over 11 percent versus the dollar this year, the second-best performer in emerging markets
  • Core inflation jumped to 0.9 percent in April from a year earlier, the highest since June 2014. Joblessness is near the lowest levels since the end of communism in 1989

“With Polish unemployment reaching a 25-year low, the potential for wage growth to accelerate certainly keeps the prospect of an early rate hike alive,” said Bhaveer Shah, a London-based foreign-exchange strategist at Credit Suisse Group AG.

— With assistance by Barbara Sladkowska

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