February 23, 2018 / 12:09 PM / 4 months ago

Polish MPC may tolerate CPI even at 4 percent, hawk says

WARSAW, Feb 23 (Reuters) - Polish central bank policymakers with bad memories of deflation may not vote for a rate hike until late 2019 even if inflation temporarily surges to as high as 4 percent, Monetary Policy Council member Kamil Zubelewicz told Reuters.

In an interview approved for publication on Friday Zubelewicz also said the relatively strong zloty is positive for the economy, as it lowers the state’s borrowing needs and offers relief to households with debt in Swiss francs.

Polish central bank has kept its main interest rate at a record low 1.5 percent since March 2015, even its most recent forecasts in November see the bank’s 2.5 percent inflation target being exceeded next year.

“Unfortunately, there is still fear of deflation regardless of its sources and a relatively high tolerance for inflation, even in the face of the possibility of temporary inflation at four percent,” said Zubelewicz, an inflation hawk who thinks rates should have been hiked long ago.

“Therefore, I still think that by the end of 2019 it will not be possible to build a majority in the MPC for rate hikes ... We expect next year stronger inflationary pressure than this year, but the scale of these changes should not be important for MPC members.”

Central bank governor Adam Glapinski, a former politician and friend of the head of the ruling right-wing Law and Justice (PiS) party, Jaroslaw Kaczynski, said this month that interest rates may be left unchanged beyond 2018.

PiS, whose policies making hefty social transfers to poorer parts of society, faces a general election next year and local polls in autumn 2018.

Zubelewicz said the MPC could be prompted to hike rates if core inflation prospects rise excessively, demand for credit rises sharply and becomes unmoored from the real economy, or if market turbulence weakens the currency.

He said the stronger zloty — which rose by 5 percent to euro and almost 20 percent to the dollar last year — was good for the Polish economy, which is already growing robustly.

“The stronger zloty diminishes borrowing needs of the state, entrepreneurs, and households in debt in foreign currencies. It is also — to a small extent — a factor that limits consumer price rises,” Zubelewicz said.

More than half a million Poles took out mortgages denominated in Swiss francs several years ago to benefit from low interest rates. Some are still struggling with repayments after the value of the franc surged. (Writing by Marcin Goclowski; Editing by Catherine Evans)

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