September 11, 2019 / 4:02 PM / 10 days ago

UPDATE 1-Polish central bank keeps rates flat, plays down impact of wage hikes on CPI

(Adds background and more quotes)

By Pawel Florkiewicz

WARSAW, Sept 11 (Reuters) - Polish inflation will likely slow and stay around target after peaking in the first quarter of 2020, the central bank said on Wednesday, playing down fears that planned hikes in the minimum wage could fuel stronger price growth.

Ahead of a parliamentary election on Oct. 13, the leader of Poland’s ruling nationalist Law and Justice (PiS) party, Jaroslaw Kaczynski, said on Saturday the minimum wage would be almost doubled to 4,000 zloty ($1,013) by 2023.

The proposed increases to the minimum wage will have a minimal impact on inflation, central bank governor Adam Glapinski, a long-standing friend of Kaczynski, said on Wednesday, after the bank left interest rates unchanged at 1.5%.

“Privately as an economist I always thought that, if it is possible and realistic, we need to hike the minimum wage as quickly as possible,” Glapinski told a news conference.

Earlier Kaczynski said both men had discussed minimum wage growth in private.

“It has a minimal influence on inflation... 0.1 percentage points next year and something similar the following year,” Glapinski said.

Consumer price inflation will peak at 3.5% in the first quarter of 2020 before slowing to 2.8% in the following quarter, he added.

The bank targets CPI of 2.5% plus or minus one percentage point. Polish CPI hit its highest point in July since 2012, coming in at 2.9%, before decelerating slightly to 2.8% in August, fueling discontent among the public.

“Food prices have risen a lot. ... Mainly fruit and vegetables, it’s a nightmare. And meat. I don’t know what will happen with potatoes this winter,” said Barbara Chrzanowska, 56, a post office worker in Warsaw.

Minutes from a regular sitting of the central bank’s Monetary Policy Council (MPC) in July showed that a motion to raise interest rates by 25 basis points was filed and rejected.

However, signals that central banks in major economies will move to ease policy have taken the pressure off Polish rate-setters to act.

The European Central Bank is widely expected to introduce a package of monetary easing and stimulus measures on Thursday to offset the effects of an ongoing U.S.-China trade war and a global economic slowdown.

The Polish MPC, most of whose members were appointed by the ruling PiS party, reiterated its view on Wednesday that the current level of rates kept Poland on a balanced growth path.

“We still think that the MPC will not change interest rates either this year or next,” Santander Bank Polska economist Grzegorz Ogonek said in an emailed comment. ($1 = 3.9467 zlotys) (Reporting by Pawel Florkiewicz, Alicja Ptak, and Aleksandra Tyczynska; writing by Marcin Goclowski; Editing by Alan Charlish and Gareth Jones)

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