WARSAW Keeping Polish interest rates at record lows for a long period could become a risk if wage pressure rises this year due to a possible outflow of Ukrainian migrant workers and a reduction in the pension age, rate-setter Lukasz Hardt said.
The comments from Hardt, who has maintained a wait-and-see stance on rates, signal that he is less dovish than central bank Governor Adam Glapinski who said this month that the benchmark rate could remain at a record low of 1.5 percent even until the end of 2018.
Hardt said in an interview at the Reuters Central & Eastern Europe Investment Summit that he was concerned about potential negative effects on savings and financial stability if interest rates remain negative when adjusted for inflation.
"I am a bit afraid of tolerating negative real interest rates for a prolonged period of time," he said.
Poland's annual inflation hit 2.2 percent in February, pushing real interest rates into negative territory for the first time in five years. The central bank targets inflation at 2.5 percent give or take one percentage point.
"If at the very beginning of next year we see negative real interest rates till the end of next year ... then this would be a very crucial moment for me to decide whether we are still to tolerate (negative real rates)," Hardt said.
A Reuters poll expects rates to remain stable until a 25 basis point hike in the second quarter of 2018. Markets PLNFRA price in the first hike at the end of 2018.
Hardt said the lowering of the retirement age in October and the EU's decision to allow visa-free travel for Ukrainian citizens from June 12 could reduce the number of workers in Poland, exerting upward pressure on wages.
"The probability of having stronger wage growth is really higher than it was some time ago," Hardt said.
Poland, which has a population of 38 million, issued more than a million six-month work permits for the citizens of Ukraine last year. This year Poland expects to issue even more such permits.
However, analysts say some Ukrainians working in Poland could decide, once visa-free travel is allowed, to move on to Germany where wages are much higher, despite the fact that they would not have work permits there.
(Reporting by Krisztina Than, Pawel Sobczak, Marc Jones and Marcin Goettig; Writing by Marcin Goettig; Editing by Susan Fenton)