September 21, 2017 / 12:28 PM / 10 months ago

Polish could consider raising rates in first quarter of 2018: central banker

WARSAW (Reuters) - Poland could consider a small hike in interest rates early next year to offset rising inflationary and wage pressures, central banker Eugeniusz Gatnar said, underlining the hawkish view of a minority among the bank’s 10 monetary policymakers.

The central bank has kept benchmark rates at a record low of 1.5 percent since March 2015 and Governor Adam Glapinski has said he expects them to stay there until the end of 2018 given the expected path of inflation.

But with inflation at 1.8 percent now and expected to near the 2.5 percent target in early 2018, there is a “growing awareness” about the adverse effects of rates staying negative for too long, Gatnar said.

Poland’s robust economic growth — the economy expanded by 3.9 percent in the second quarter — is meanwhile squeezing the labor market.

“There is no economic growth without wage pressures, without inflation,” Gatnar told Reuters in comments cleared for publication on Thursday.

“If wage pressures rise in line with my expectations and inflation comes near the target then I would expect interest rates to be raised in the first quarter of next year.”

    He added that he is in favor of a gradual, 25 basis point tightening.

In late August, another central banker, Kamil Zubelewicz, said that Poland should nudge rates up now.

TIMING IS KEY

The labor market is facing further compression from the ruling party Law and Justice (PiS)’s lowering of the retirement age, which comes into effect in October.

Although the full impact will lag by a few months, the change will feed into inflation, Gatnar said, as will the traditional autumn increase in food prices.

“All these factors will make inflationary pressures stronger than they have been so far,” Gatnar said.

That means that lending rates could stay below inflation for some time, which encourages indebtedness and “irrational consumption”, he added.

“There is a growing awareness among the Monetary Policy Council of the adverse effects that come from real interest rates staying negative for a long time. This is visible even in the monthly ‘minutes’.”

Gatnar said he was worried that the rate-setters could be late to tighten, as the impact of the changes may not be apparent for six to eight quarters.

     “If the decision to raise interest rates is taken too late ... this could harm the economy,” he said.

Reporting by Pawel Florkiewicz; Writing by Lidia Kelly; Editing by Catherine Evans

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