By Karolina Slowikowska and Marcin Goettig
WARSAW (Reuters) – Poland’s very low inflation is temporary as the economy is growing strongly, but discussion on raising interest rates is months away, central bank policymaker Anna Zielinska-Glebocka said on Tuesday.
Zielinska-Glebocka, who sits on the central bank’s 10-strong Monetary Policy Council, told Reuters that economic growth could exceed the central bank’s forecast of 3.6 percent this year.
She said there was no reason to expect the bank to cut interest rates given the strong economic performance and the temporary easing of inflation. Rate cuts were “unrealistic”, she said.
However, another central banker, Elzbieta Chojna-Duch, who is one of the strongest supporters of lower rates on the MPC, said cuts would be needed if Poland’s economic recovery loses steam and inflation stays at a low level.
Chojna-Duch said that an expected rate cut by the European Central Bank in June would increase the interest rate disparity between Poland and the euro zone.
“This would be an argument for easing monetary policy in the coming months,” she told Reuters.
Central European peer Hungary cut interest rates on Tuesday to a fresh record low of 2.4 percent and now has official rates lower than Poland’s 2.5 percent.
Piotr Bielski, a senior economist at BZ WBK bank in Warsaw, believes that Chojna-Duch’s is a minority view on the MPC and unlikely to get the backing of other members apart from the ultra-dovish Jerzy Osiatynski.
Influenced by surprisingly low inflation data this month, financial markets have switched from pricing in interest rate hikes to pricing in a slight probability of rate cuts over the next nine months.
After that period forward rate agreements price in a roughly 30 percent probability that rates at the end of 2015 will have gone up to 2.75 percent.
Zielinska-Glebocka said that there would not be any talk of interest rate hikes “for many months to come”.
LOW INFLATION
She said inflation would remain low, at 0.4-0.5 percent in the next couple of months, before rising to a touch above 1 percent at the end of the year.
The central bank targets inflation at 2.5 percent and inflation is not expected to near this level for a long time, she said.
“The low inflation level is only temporary, caused by supply shocks stemming from increased supply of food on the Polish market, following import bans by Russia and Ukraine. I certainly do not fear deflation,” she said.
“The economy is very strong, everything points to fast growth, and so the recent inflation readings of 0.3 percent are just a glitch, they have nothing to do with the economic fundamentals.”
Bans by Ukraine and Russia on Polish pork imports have created excess supply in Poland, putting downward pressure on prices of some foodstuffs.
Ukraine, which banned Polish pork after cases of African swine fever were found among wild boar in some regions in Poland, is due to lift the ban later this week.
Russia has banned imports of Polish pork in what the Polish government believes is a politically motivated move after Warsaw backed Ukraine after Russia’s annexation of Crimea. Those bans are expected to stay in place for now.
(Editing by Susan Fenton)
