WARSAW, March 11 (Reuters) - If the Polish central bank’s July inflation report indicates that economic growth in 2020 will come in below 3%, the Monetary Policy Council (MPC) will have to start discussing a rate cut, rate-setter Rafal Sura told Reuters.
The central bank currently forecasts growth in gross domestic product (GDP) of 3.2% for this year, but the global economy has been rocked by the coronavirus epidemic, prompting fears that growth will slow.
“We are observing the situation, we are waiting for the July forecast, and if it shows this year’s level of growth at less than 3% then we will start discussing cutting rates,” Sura said in an interview.
Such a discussion will not automatically mean that the MPC will cut rates and stable rates are the best option, Sura said, adding, however, that less optimistic scenarios may also need to be considered.
“I wouldn’t like to say now, if in such a situation it (a rate cut) would be 25 basis points or 50 points,” he said.
On Saturday Poish central banker Jerzy Zyzynski was quoted as saying he would favour a 50 basis point rate cut in May if growth falls clearly below 3% and inflation slows.
While the MPC’s most dovish member Eryk Lon has also spoken in favour of a cut, rate setters Jerzy Kropiwnicki and Lukasz Hardt - who is one of the panel’s hawks - have said the outbreak of coronavirus should not cause rates to change.
Poland has confirmed 26 cases of coronavirus so far. Nobody has died.
On Tuesday Poland’s Development Minister Jadwiga Emilewicz said GDP growth could be 0.5 to 1.3 percentage points lower than expected this year due to the coronavirus.
Poland’s benchmark interest rate has been at a record low of 1.5% since the central bank ended an easing cycle in 2015. While there had been calls from some MPC members to hike rates in the face of surging inflation, cuts are now seen as more likely as central banks scramble to deal with coronavirus.
Sura said that, while in the first half of 2020 inflation would remain above the upper limit of the bank’s inflation target range of 2.5% plus or minus 1 percentage point, in the third quarter it would start to slow before returning towards the mid-point of the target range in 2021. (Reporting by Pawel Florkiewicz and Alan Charlish Editing by Gareth Jones)