As a result, inflation this year may require stronger fiscal and monetary policy response, Tyrowicz said. She said the policy debate in Poland has been hijacked by the question of what level of interest rates mortgage borrowers can cope with and the potential risks to employment from monetary tightening. "If we improve the communication and are more effective in managing inflation and real economy expectations in the months to come, then the extent to which monetary policy will have to become more restrictive can be mitigated," she said. Tyrowicz also said any discussion of rate cuts in the current environment was premature. "When stakeholders ponder rate cuts, they effectively undermine the efficiency of the current relatively restrictive monetary policy stance," she said. (Reporting by Gergely Szakacs Editing by Tomasz Janowski)
By Gergely Szakacs
Feb 16 (Reuters) - The Polish central bank's policy
stance is not restrictive enough given strong momentum in core
inflation, rate-setter Joanna Tyrowicz told Reuters, adding that
policymakers should not be side-tracked by worries over an
economic slowdown.
Last week the National Bank of Poland left its main interest
rate unchanged at 6.75%, as expected, the fifth month in a row,
remaining in wait-and-see mode as it assesses the damage to the
economy caused by the war in neighbouring Ukraine.
Central Europe's biggest economy is expected to run the
European Union's second-highest inflation rate at 11.7% this
year based on the European Commission's latest forecasts, with
economic growth stalling after a 4.9% expansion in 2022.
January figures published on Wednesday showed Polish
headline inflation climbing to a lower-than-expected rate of
17.2% in January. Poland's central bank expects inflation to
pick up in the first quarter before it starts falling back into
single digits later this year.
However, Tyrowicz, who is in a hawkish minority in the
10-member rate-setting Monetary Policy Council, said headline
inflation was very strongly influenced by regulatory changes,
which reduced its effectiveness in guiding central bank policy.
"If you take core inflation instead of CPI, then the trends
that we've seen before continue. Core inflation is still gaining
momentum," she said.
"Do I believe that interest rates should be higher? The
inflation rate is above 17% and the target is 2.5%. Yes.
Certainly, we need higher interest rates."
She added that even though the effects of hikes worth over
600 basis points in the bank's main rate were beginning to show,
decisionmakers should not lose sight of their main objective of
bringing inflation back to target.
"We cannot be side-tracked by worries of slowdown because
our job in bringing inflation back to target is far from done,"
she said.
Tyrowicz, appointed to the bank's Monetary Policy Council in
September by the opposition-dominated Senate, said core
inflation was expected to exceed 10% throughout 2023, while
headline inflation would run largely unchanged from last year.
"I do not see much disinflation," she said.
"The path towards our policy target of 2.5% is not
well-defined. If an economy ends the year averaging roughly the
same as in the year when tightening of the monetary policy
started, then such an economy is clearly not on track to
target."
She said while much of last year's inflation was driven by
external factors, such as rising energy prices and weakening
exchange rate, in 2023 most of it would be "home-grown," due in
part to double-digit wage increases, which are inconsistent with
the bank's inflation target.
Poland has raised the minimum wage sharply this year in the
run-up to a parliamentary election due in October or November.
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