Photographer: Piotr Malecki/Bloomberg

Emerging Europe's ‘Next One to Hike’ Goes Wobbly on Rate Liftoff

Updated on
  • Governor still favors no change in borrowing costs this year
  • Central bank extended its record pause by holding rate at 1.5%

Poland’s central bank is overcoming a divide over the need to tighten monetary policy this year, opting on Wednesday to keep interest rates unchanged without offering much guidance beyond 2018.

While repeating that a period of record-low borrowing costs could last through the rest of the year, Governor Adam Glapinski backed away from his view that Poland’s longest-ever rate pause should remain in place even in 2019. At the same time, a minority in favor of higher rates on the 10-person Monetary Policy Council saw a defection by one of its most vocal members, as Lukasz Hardt came around to offer Glapinski his backing.

Adam Glapinski

Photographer: Piotr Malecki/Bloomberg

“I’m trying to avoid talking about the situation in 2019,” Glapinski told reporters in Warsaw. “I definitely stick to my view on 2018 and that’s the maximum one could talk about.”

As Poland tries to cope with price pressures and faster economic growth, Glapinski is showing doubt that the MPC can hold out much beyond 2018 with rates still set at a level warranted three years ago by the country’s worst-ever stretch of inflation. Striking a more balanced tone, the governor is also mending a split between policy makers, with Hardt joining Wednesday’s news conference to say there was now a higher probability of “Glapinski’s scenario” of stable rates this year.

Hardt has previously said the central bank could consider a “small” rate increase in February or March if inflation accelerated in line with a staff projection. Eugeniusz Gatnar, who previously argued in favor of tightening as early as this quarter, supported a hold last month, according to his fellow board member Jerzy Kropiwnicki.

‘Feels Comfortable’

“The conference’s language confirms, in our view, that the vast majority of the MPC feels comfortable with the current policy and the suggested flat footpath throughout 2018,” Raiffeisen Polbank SA economists including Dorota Strauch said in a note.

Forward-rate agreements are still pricing in a full quarter-point rate hike over the next 12 months, rebounding from January’s three-month low. Poland’s benchmark has stayed at its historical low of 1.5 percent since March 2015.

Once dismissive of risks to price growth, Glapinski has recently sounded more vigilant, pointing to “inflation impulses from abroad,” especially as regards oil, and wage increases on the back of economic acceleration. Polish consumer-price growth slowed in December from a five-year high, slipping to an annual 2.1 percent, while the economy probably notched expansion in excess of 5 percent last quarter.

“Next month, the new inflation projection will be released and in our view it may show an even higher path than before,” Bank Zachodni WBK analysts led by Piotr Bielski said in a note. “We think that CPI zig-zagging in a horizontal trend below the 2.5 percent target for the better part of this year will give the MPC a good enough argument to keep monetary policy on hold until the very end of 2018.”

— With assistance by Josh Robinson

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