Poland will probably keep borrowing costs at a record low, judging that threats to the economy from tighter Covid-19 restrictions outweigh a spike in inflation and a weaker national currency.
Despite surging price growth prompting nearby Russia and Ukraine to hike interest rates, all economists surveyed by Bloomberg predict the central bank in Warsaw will leave its benchmark at 0.1% for an 11th straight month on Wednesday.
The pandemic remains the driving force as a third wave sweeping Europe brings record daily new cases in Poland. After suffering less than their western neighbours as the coronavirus first appeared last year, the continent’s east has become the planet’s most-deadly region on a per-capita basis this time around.
The central bank “remains determined to maintain loose monetary policy to support the economic recovery,” said Rafal Benecki, chief economist at ING Bank Slaski in Warsaw. “Keeping inflation in check isn’t a priority for them now.”
Benecki sees the Monetary Policy Council declaring price growth that hit a six-month high in March as temporary, even if it looks set to kick on beyond the 3.5% upper limit of the official target range. He doesn’t predict interest rates will rise before 2022.
Of more concern is the damage being wrought by the virus on the European Union’s biggest eastern economy, which shrank for the first time in nearly three decades in 2020.
Central-bank projections published last month envisage 4.1% growth this year as ultra-low rates are complimented by quantitative easing and 300 billion zloty ($77 billion) in fiscal stimulus from the government. But MPC member Jerzy Kropiwnicki said last week in a blog post that lockdown measures are “significantly weakening hopes” for a recovery in the coming months.
“The economy will rebound positively in the second half of the year,” he wrote, forecasting a full-year number of 3% to 3.5%.
The zloty — the second-worst-performing emerging-market currency in March — could help by making exporters’ goods more attractive. The central bank had long being calling for a weaker currency, repeatedly warning that its earlier strength was a threat to faster economic expansion and intervening to weaken it in December.
After the zloty slid to a 12-year low against the euro last month, investors will be on the lookout for a tweak in the wording of the central bank’s post-decision communique, which has repeatedly urged a “more lasting” downward adjustment in the exchange rate, according to Jakub Borowski, chief economist at Credit Agricole Bank Polska.
More clarity may come from comments by central bank Governor Adam Glapinski, who’ll discuss Poland’s economic situation in an online news conference Friday at 3 p.m. Warsaw time.