(Bloomberg) -- Surging inflation and a government plan to nearly double the minimum wage weren’t enough to make Poland abandon its pledge to keep borrowing costs at a record-low for the foreseeable future.
Buttressed by looser monetary policy in the world’s major economies, the central bank kept its benchmark interest rate at 1.5% on Wednesday. That was in line with analyst predictions and extends an unprecedented pause that began in 2015.
The decision follows the government’s announcement that it will lift minimum salaries by almost 80% over four years if it wins elections next month, as polls predict. While some analysts fret that this may stoke inflation and dent Poland’s appeal among investors, Governor Adam Glapinski is at ease with the wage plan.
“This isn’t an important challenge or change, and from the point of view of inflation, it’s a marginal event,” Glapinski told reporters in Warsaw. “The economy is perfectly fine with the current pace of wage growth.”
Poland stood pat as faster inflation prompted the nearby Czech Republic and Hungary to tighten monetary policy. As the U.S.-China trade war prompts the Federal Reserve and the European Central Bank to inject stimulus into the global economy, Glapinski says leaving borrowing costs untouched was the right course of action.
Even so, inflation near a seven-year high has reinforced concerns among a minority at the central bank that interest rates may need to be raised. Two of the nine Monetary Policy Council members present at July’s meeting voted for an increase, while another two said they could do too if inflationary pressure intensified.
That would risk undermining economic growth, which dipped a little to 4.5% from a year earlier in the second quarter. Poland’s economic situation should be looked at from the perspective of slowing growth globally and loosening of monetary policy in Europe and the U.S., according to Glapinski.
“This isn’t good weather for hawks,” he said, reiterating that there’s still room to lower interest rates, if needed.
Investors don’t see a move in either direction in the next 12 months.
“The majority of MPC members will strive to stabilize the cost of money for a long time, based on inflation expectations consistent with the inflation target,” Bank Millennium SA said in an emailed note.
(Updates with governor starting in third paragraph, economist in last.)
--With assistance from Barbara Sladkowska.
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