Biggest Polish Interest Rate Hawk says “raise Interest rates” to combat inflation

Poland should swiftly raise interest rates from a record low to curb surging inflation, according to the central bank’s most outspoken hawk.

Eugeniusz Gatnar, a member of the 10-strong Monetary Policy Council, said the bank should stop worrying only about economic growth and return to its primary focus of price stability. In what would be the European Union’s first interest-rate increase since the pandemic, he recommends a 10 to 15 basis-point hike next month.

The MPC “can no longer afford to watch growing prices passively,” Gatnar said Wednesday in an interview. “Normalization doesn’t mean a return to higher rates only, but also a clear signal that the council’s focus is being shifted from gross domestic product to inflation.”

Polish inflation has jumped to a one-year high, surpassing the upper limit of the 1.5%-3.5% target range. It’s likely to continue accelerating and may reach 5% in June, according to Gatnar, who sees a variety of factors at work:

  • Vaccines are helping the economy bounce back
  • Huge fiscal support from the government that will soon be enhanced by billions of euros of EU stimulus
  • A weaker zloty boosting imported fuel and energy costs
  • Higher service prices as companies try to compensate for lockdowns
  • Upward wage pressure amid low unemployment
  • The start of a consumer rebound after months of restrictions on retail

For Gatnar, there’s already sufficient evidence the economy is back on a growth path, and the central bank should raise this year’s average inflation forecast from 4.2%, which he deems “too cautious.” First-quarter GDP data due Friday are likely to show a 1.1% advance from the previous three months, according to a Bloomberg survey of analysts.

When greeted with rising prices on their return to everyday shopping, Poles will come to see inflation as more important than economic expansion, Gatnar said. To maintain support for growth, he recommends continuing quantitative easing beyond the first rate hike — unlike Glapinski — and until EU stimulus money starts to arrive.

“We should change our rhetoric as soon as possible by stressing that with the economy returning to normal, monetary policy should actually do the same,” he said.


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