March 19, 2018 / 2:19 PM / 8 months ago

Polish central banker Osiatynski warns inflation may surprise to upside

WARSAW, March 19 (Reuters) - Inflation in Poland may turn out higher than the central bank new forecasts, because at some point companies will start raising prices to keep their margins from being eroded by rising wages, a member of the bank’s rate-setting committee said.

Consequently, it’s not clear interest rates will remain unchanged until the end of the year, Jerzy Osiatynski told Reuters in an interview - a view that differs from that of most of the 10-member Monetary Policy Council, who expect no change in the coming quarters.

It is considerably more hawkish than the outlook of the central bank’s governor, Adam Glapinski, who said earlier in March he saw no reason to raise rates until the end of 2020, given current forecasts.

“Such a conviction that we be sailing calm waters until 2020 seems risky to me,” Osiatynski said in comments authorised for release on Monday. “I would very much like this to happen, but it good not to create an illusion that for sure it will be so.”

Whether rates will rise this year will likely depend on the central bank’s future inflation forecasts, he said.

Wages have been growing at a high single-digit pace in recent months, but inflation has remained moderate and even eased to 1.4 percent year-on-year in February, mainly thanks to a slowdown in food prices.

“Regarding the most important issue - the pressure of wages on inflation - I am more cautious than many of my colleagues,” Osiatynski said in comments.

“Firms may accept declining profits stemming from the rise in unit labour costs ... for some time. But this has to end at some point, particularly as regulatory burdens with respect to labour costs are also rising,” he said.

Osiatynski also said that he was not worried that current, record-low interest rates would discourage savings, because the inflation-adjusted returns of, for example, treasury and corporate bonds, were at healthy levels.

The central bank has kept its benchmark rate at a record-low 1.50 percent since a 50-basis-point cut in March 2015. By contrast, rates in the euro zone have remained near or below zero since 2014. (Reporting by Marcin Goettig, editing by Larry King)

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