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Polish Rate Rise Beckons for MPC Member on Budget Stimulus

Dorota Bartyzel
Polish Rate Rise Beckons for MPC Member on Budget Stimulus

(Bloomberg) -- Poland’s inflation may accelerate “significantly” on the government’s fiscal stimulus, possibly requiring higher interest rates as early as this year, according to a member of the central bank’s Monetary Policy Council.

Jerzy Osiatynski told Bloomberg that unlike the government’s previous welfare spending, which boosted consumption and fueled nearly 5 percent expansion over the past two years, this time there’s little additional capacity in the economy. With unemployment near historic lows and wages growing faster than productivity, the $11 billion stimulus may have a big impact on prices as it keeps growth humming around 4 percent this year and next, he said.

“The fiscal package raises risk that inflation will accelerate faster than forecast,” Osiatynski said in an interview in Warsaw. “That is why it can no longer be assumed that interest rates will remain stable even until the end of this year.”

By broaching the possibility of the first rate increase since 2012, Osiatynski is the latest policy maker to diverge from central bank’s Governor Adam Glapinski, who this month said that the benchmark rate may stay unchanged at 1.5 percent possibly as long as into 2022. Osiatynski, whose six-year term ends this year, is the only MPC member not picked by the ruling Law & Justice party and its political ally, President Andrzej Duda.

Kamil Zubelewicz, Osiatynski’s colleague on the 10-member central bank panel, told the PAP news service that fiscal stimulus will weaken the zloty and interest rates should be raised to prop up the currency’s “abnormal” weakness. Meanwhile, MPC member Jerzy Zyzynski said rates may stay unchanged until 2022, as Glapinski predicts, PAP reported Monday.

Fiscal Upheaval

Osiatynski’s comments are the strongest yet from the central bank about the fiscal plan. They also come amid uncertainty about Finance Minister Teresa Czerwinska, who is in a dispute with Prime Minister Mateusz Morawiecki over the extra spending.

The premier said on Saturday that there was a “very high probability” that the budget deficit won’t exceed the European Union’s 3 percent of gross domestic product cap this year or next, compared with last year’s record-low shortfall of around 0.5 percent.

Osiatynski said that even if the full impact of the fiscal package is still unknown, the stimulus “clearly ended” talks about any monetary easing among the 10-member MPC. He said the panel discussed such an option “only sporadically.”

Robust economic growth without inflation -- which Glapinski has called the “Polish economic miracle” -- may no longer be possible as wages are already rising 7 percent and the labor market is running out of additional resources. This job crunch trend is set to expedited, he said, as other EU nations open their markets to the more than 1 million Ukrainian workers currently working in Poland.

The central bank projects inflation at 1.7 percent this year and 2.7 percent in 2020.

“Producers aren’t likely to squeeze their margins further, which may trigger a price impulse,” Osiatynski said. “In such a situation, I can’t promise interest rates will stay unchanged this year.”

(Updates with comments from other MPC members in fifth paragraph.)

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Wojciech Moskwa, Andrew Langley

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