(Bloomberg) -- Poland left interest rates unchanged for a second straight month and said the “significant” scale of monetary tightening to date should help rein in inflation from the fastest pace in 26 years.
The central bank’s decision to keep the reference rate at 6.75% followed a meeting on Wednesday that dragged on hours longer than usual amid an acrimonious dispute among policy makers that left economists almost evenly split on what the central bank will do.
Central bank forecasts released after the decision showed the economy will slow sharply next year and inflation likely return to single-digits only in 2024. Governor Adam Glapinski has said the November projections should help policy makers decide whether to rule out any further rate increases.
He will hold a news conference to explain the decision at 3 p.m. in Warsaw on Thursday.
“The central bank sees inflation meeting its target in 2025 and in light of growth risks, this will have to do,” said Bank Pekao SA economists, led by Ernest Pytlarczyk. “There will be no further interest-rate hikes, although the central bank statement, as per usual, leaves the back gate open.”
The debate on the rate-setting panel has grown heated in recent weeks. Policy makers aligned with Glapinski believe that their aggressive yearlong campaign is sufficient to tame price growth. That put them at odds with a vocal minority on the 10-person Monetary Policy Council, which continues to push for more tightening.
The decision comes a day after Romania’s central bank scaled back the pace of monetary tightening to assess the impact of an economic slowdown and a longer period of high inflation.
Inflation will return to the target “only gradually” because of “the scale and persistence of shocks” that are affecting the economy and remain beyond reach of domestic monetary policy, the MPC said in its statement after the meeting. “Under such circumstances, the hitherto significant monetary policy tightening will support a decline in inflation in Poland toward the target.”
Meanwhile, the latest indications from the government that temporary tax cuts on energy will most likely expire at the end of this year may lead to prices flaring up again. Policy maker Ludwik Kotecki forecast that this may push inflation to 24% in February, although Prime Minister Mateusz Morawiecki already promised offsetting measures to keep prices capped.
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 will suffer further.
--With assistance from Barbara Sladkowska, Piotr Bujnicki and Wojciech Moskwa.
(Updates with comments and central bank forecasts from second paragraph.)
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