The National Bank of Poland is less of an outlier on monetary tightening now that its counterparts from Japan to Sweden and beyond are choosing to stick with easy policy for longer. True to its mantra on rates, the Monetary Policy Council in Warsaw reaffirmed its wait-and-see bias on Wednesday, leaving its benchmark at a record-low 1.5%.
Governor Adam Glapinski, who’s previously called for rates to stay on hold this year and next, told reporters that Poland may keep borrowing costs stable into 2020. An increase would be “inappropriate” as the pace of economic growth globally – and to a smaller degree in Poland – is expected to slow in the coming years, he said.
“The world’s second thoughts on tightening” are a “confirmation of our own expectations – simply that we were right and that we still are,” Glapinski said.
The central bank’s inclination to stick with its longest- ever rate pause has turned to conviction just as plans to tighten monetary policy get sidetracked around the world. In the neighbouring euro area, the main destination for Poland’s exports, the European Central Bank last month avoided any discussion of its next steps toward ending bond buying amid signs that the bloc’s economic growth is faltering.
The zloty could be a worry after a selloff in May put it on track for a fourth month of declines. In developing Europe this year, it’s the third-worst performer against the euro after Russia’s rouble and the Turkish lira. While further depreciation could boost prices of imports, especially if oil and gas continue to rise, Glapinski said he’s not concerned.
By contrast, the central bank in the neighbouring Czech Republic is mostly relying on a stronger exchange rate to deliver monetary tightening, warning that currency weakness could bring forward rate hikes. The zloty resumed losses on Thursday, trading 0.2% weaker at 4.2825 per euro in Warsaw. The Czech koruna was little changed.
“It makes sense that a country with relatively good external balances as well as internal balances has a greater degree of freedom to manoeuvre even if the currency weakens,” said Kiran Kowshik, a currency strategist at UniCredit in London. “But it also suggests that the NBP remains non-committal and is not actively routing for a stronger currency in the same way the Czech National Bank is.”
Speaking alongside the governor on Wednesday, central banker Kamil Zubelewicz said rates could stay on hold in 2019 or longer, and a change “could happen only in case of an unexpected event.” Once the MPC’s biggest hawk, Zubelewicz said that “rate stability is a value” for most members of the council.
Polish inflation stood at an annual 1.6% in April, the fastest since January but below the central bank’s 2.5% target. Bond investors expect price growth to average 2% over the next five years, according to the so-called break-even rate calculated by Bloomberg.
While the market still sees the first rate hike in Poland late next year, expectations “will gradually fall in line with the scenario presented by Glapinski,” said Krystian Jaworski, a senior economist at Credit Agricole in Warsaw. Poland’s economy has for now been resilient to the slowdown elsewhere in Europe. Gross domestic product expanded faster than forecast last quarter, growing 5.1% from a year earlier. Meanwhile, inflation has remained in line with the central bank’s projection and is set to undershoot the target this year and hover slightly above it in 2019.
“The council turned even more dovish than before,” Bank Zachodni WBK SA economists led by Piotr Bielski said in a note. “We still assume that inflation processes and wage pressure will intensify this year, but rates will stay unchanged until late 2019.”
