Inflation outlook key to timing of Polish interest rate hike – central banker says

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An illustrative photo of a Polish zloty banknote, taken in Warsaw on January 13, 2011. Poland’s central bank raised interest rates on Wednesday for the first time since the 2008 financial crisis in an attempt to curb rising inflation in one of Europe’s most resilient economies. Photo taken January 13. REUTERS / Kacper Pempel

WARSAW, October 26 (Reuters) – Poland’s inflation projection for November could be crucial for the country’s central bank when it decides whether interest rates will rise again this year, said Eryk Lon, the one of the more accommodating members of the Monetary Policy Council (MPC).

In an unexpected move, the bank raised its benchmark interest rate in October by 40 basis points to 0.5%, acting earlier than analysts expected in an attempt to curb a spike in inflation.

“Whether there is another interest rate hike this year will depend on the November projection. I think the October interest rate hike will gradually reduce inflation,” Lon wrote in response. to questions from Reuters.

Polish inflation hit 5.9% in September, well above the central bank’s target range of 2.5% plus or minus a percentage point.

“I do not exclude that the November projection will indicate that the period of inflation remaining above the upper limit of deviations from the inflation target will be relatively long, longer than the corresponding period presented in the July screening, ”Lon wrote.

“This brings me to the conclusion that the October interest rate hike was right,” he added.

Lon said there is a good chance that at the turn of this year and next year, inflationary trends will start to fade. This will mainly depend on commodity prices, especially oil prices.

“In my opinion, we can tolerate temporarily increased inflation if it is accompanied by a good situation in the labor market. It would be worse if the inflation was low, but the unemployment rate was high, ”said MPC MP.

Lon also said that over the next few years, the main interest rate will again at some point be at the 1.5% level.

He reiterated that in the future it was worth considering expanding the allowable margin for deviations from the inflation target from 1.5-3.5% to 0.5-4 , 5%.

“Of course, the decision in this regard will rest with the MPC in the next term,” he added.

Report by Pawel Florkiewicz. Editing by Jane Merriman

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