Polish central bank head says raising rates will be very risky

Bloomberg

The head of Poland’s central bank pushed back against rising expectations for interest-rate increases, saying lifting borrowing costs now would be “very risky” despite inflation hitting a two-decade high.
In an interview with the PAP news service just three days before the next monetary-policy meeting, Governor Adam Glapinski said the bank isn’t ignoring elevated price growth and won’t allow it to become persistent.
The pandemic continues to cloud the economic outlook, making it too early to remove stimulus, said Glapinski, who’s views tend to prevail in setting Poland’s monetary policy.
“The most important thing is how the economic situation develops next year,” he said. “If economic conditions remain very good, the situation in the labor market remains favorable and inflation exceeds the central bank’s inflation target, it will be justified to withdraw the monetary accommodation.”
It’s a familiar tone from the governor, who’s spent months arguing that the bank should look beyond soaring consumer prices, which he deems a temporary phenomenon caused by economic disruption from the pandemic.
But the bank and the government have faced growing criticism of late for tolerating the current bout of inflation. Former Governor Marek Belka warned last week that Poland risks a “catastrophe,” with rapid wage growth potentially driving even higher future prices.
Glapinski said that he sees no signs of a wage-inflation spiral and expects price growth to slow from the second quarter of 2022. Some of his colleagues on the 10-person Monetary Policy Council are less sure.
With Polish inflation reaching 5.4% from a year ago in August, bets increased that the central bank will follow the interest-rate hikes already being implemented in nearby Czech Republic and Hungary. The zloty recorded its biggest rally since April last week.
Even so, all 20 economists surveyed by Bloomberg predict the benchmark will be kept at a record-low 0.1% on Wednesday.
Glapinski said zloty appreciation “doesn’t seem favorable” for the economy as “it would partially offset the effects of monetary accommodation.” The central bank has already scaled back its bond-buying program, but quantitative easing will only end once the bank decides to tighten policy, he said.