Bloomberg News

Poland’s Kazmierczak Undecided on Interest-Rate Increase

May 01, 2012

Polish central banker Andrzej Kazmierczak, who’s sought to raise borrowing costs for almost a year, is undecided on whether to back an interest-rate increase this month as threats to the European Union’s biggest eastern economy build.

While the Monetary Policy Council may discuss a quarter- point increase after inflation topped the regulator’s target for an 18th month, Poland faces external risks such as a euro-area recession, decreased funding for local units of western European banks and higher energy prices, according to Kazmierczak.

“The list of risks is not only long but the risks are also intensifying, increasing the threat of a Polish economic slowdown,” Kazmierczak said yesterday in an interview in Warsaw. “It may be the first time that a week before a rate meeting I haven’t decided what I’ll do.”

Policy makers will consider raising rates at their May 8-9 meeting, the central bank has said. The majority of the 10- member MPC rejected an increase motion last month, seeking more data to gauge the extent at which the economy is slowing. Since then, figures have shown industry and retail-sales growth decelerated, while inflation stayed above the 2.5 percent goal.

The zloty traded at 4.175 per euro late yesterday in Warsaw, down from 4.169 on April 27 and paring its 2012 gains to 7.1 percent. The yield on the 10-year government bond was little changed at 5.40 percent, data compiled by Bloomberg show.

‘Stubbornly High Inflation’

Tightening monetary policy wouldn’t curb corporate demand for credit and would prevent second-round inflationary effects, sending “a strong signal” on the council’s resolve to combat inflation, said Kazmierczak, who opposes starting a cycle of rate increases.

“Support for growth can’t really be an excuse for tolerating such stubbornly high inflation,” he said.

Gross domestic product will advance 2.5 percent in 2012, less than last year’s 4.3 percent increase, as Europe’s debt crisis damps foreign demand for Polish goods, the government predicts. The euro region, which buys more than half the nation’s exports, will contract 0.3 percent this year, the International Monetary Fund forecasts.

The central bank raised its benchmark rate in four steps by a total of 1 percentage point to 4.5 percent in the first half of 2011 to tame price growth. Kazmierczak was the only MPC member to vote last July for another quarter-point increase. Since then, the only motion to increase borrowing costs came in April, with details of how council members voted due late May.

Following that decision, the bank said it may raise rates as early as May. Governor Marek Belka warned on March 27 against increasing interest rates too soon. The bank predicts price growth will fall within its 1.5 percent-3.5 percent target range at the end of next year.

“Pros balance cons, so I’ll be looking carefully at all the arguments and making a decision at the very last moment,” Kazmierczak said. “So will the other members of the council. This meeting is crucial as the risk of a mistake is big.”

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

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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