- MPC member Kotecki expects inflation to stay in double digits
- Policymaker sees need for a quarter percentage point hike now
According to Bloomberg article published on April 12, 2023, Poland’s central bank should raise interest rates to show it wants to get inflation under control and rebuff the growing perception that it lacks the resolve to do so quickly, policymaker Ludwik Kotecki said.
A proponent of more restrictive monetary policy, Kotecki said inflation is likely to stay in double digits through the rest of the year. Rising crude prices, a tight labor market and loose fiscal policy may keep consumer prices high for longer than the central bank should be ready to accept, he said in an interview last week.
“It seems to me there are growing doubts about whether the current degree of monetary tightening will stabilize prices,” Kotecki said. “And if society doesn’t believe it, it won’t happen.”
The warning comes a week after the central bank kept interest rates unchanged for the seventh straight month.
Governor Adam Glapinski has mused publicly about possibly starting cuts in the fourth quarter. The main interest rate at 6.75% is the highest in two decades after a year-long cycle of increases.
While inflation began to ease in March to 16.2%, the central bank’s latest survey of professional forecasters showed only 24% of respondents expect it to return to the central bank’s target range in 2025. Consumers’ inflation expectations increased in March.
To Kotecki, that suggests monetary tightening has been insufficient and there’s room to raise rates more.
“Since the economic situation is very weak, I think that for the time being we should limit ourselves to a small increase of a quarter of a percentage point,” he said. The central bank may need to consider additional tightening once economic recovery takes hold and inflation expectations start to rise again, according to the policymaker.
“Even from a communication standpoint, a small increase would be very useful,” Kotecki said. “It would show that the council is still determined, isn’t giving up, and will fight for low inflation.”
Kotecki, Joanna Tyrowicz and Przemyslaw Litwiniuk have been the lone voices on the 10-member Monetary Policy Council to call for additional rate increases.
They’ve also pushed back against suggestions of possible cuts for later this year, which are also now being expected by investors in derivative markets.
The economy is currently in “a stagflation moment,” but growth should resume from the second quarter, he said. Wage growth is also going to catch up with inflation after falling behind in recent months and hurting consumption. Unemployment is set to stay low, according to Kotecki.
“Until our projections show — in a credible way — that inflation is returning to the target, there are no reasons to start discussions on cutting interest rates,” he said. “ We shouldn’t be having this discussion right now.”
