Polish Policy Row Leaves Rates Too Close to Call: Decision Guide

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(Bloomberg) — Poland’s central bank may raise interest rates on Wednesday in a potentially divisive decision that reflects the tension between persistently high inflation and mounting fears of a sharp economic slowdown. 

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Economists surveyed by Bloomberg are almost evenly split about whether policy makers will restart increases after last month’s pause. Sixteen of 32 forecasts predict a quarter-point hike, while 15 say the rate will remain unchanged. One analyst expects a 50 basis-point increase. 

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The uncertainty about the outcome of the meeting follows an acrimonious dispute among central bankers that pitted the majority aligned with Governor Adam Glapinski against three dissenters, who have challenged the bank’s practices and pushed for more resolute action to tame inflation. Consumer prices rose 17.9% in October, the fastest pace in 26 years.

Deputy Governor Marta Kightley predicted last week that inflation will return to single digits by the end of next year — and warned that economic growth is going to be “very low” in 2023. She’s not a member of the 10-person Monetary Policy Council, but often speaks on behalf of Glapinski. The governor will hold a news conference to explain the decision at 3 p.m. in Warsaw on Thursday. 

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Piotr Kalisz, chief economist at Citigroup Inc.’s Bank Handlowy unit in Warsaw, cited concerns about “inflation and its stickiness” in his forecast of a quarter point increase. Still, he said, it “won’t be a huge surprise” if the bank holds off on a hike. 

The central bank last month unexpectedly left interest rates unchanged after a yearlong campaign that lifted borrowing costs from almost zero to the highest level in more than a decade. Glapinski said that a new set of economic projections should allow policy makers to decide in November whether to rule out any further increases. 

The hand wringing over monetary policy came as an internal dispute spilled into the open last month, with dissident members challenging the central bank’s internal processes as well as the fight against inflation. 

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Muddling the picture are the latest indications from the government that temporary tax cuts on energy will most likely expire at the end of this year, which may lead to prices flaring again. Policy maker Ludwik Kotecki estimates this may push inflation to as high as 24% in February, although Prime Minister Mateusz Morawiecki already promised offsetting measure to keep prices in check. 

Meanwhile, the rate increases so far have all but quashed demand for mortgages and other long-term loans. The central bank’s fourth-quarter lending survey showed banks signaling they will further tighten loan criteria and expect a significant drop in demand for long-term corporate loans, a sign that investments are going to suffer.