(Bloomberg) — Poland’s central bank left interest rates unchanged for a second straight month as concerns over turmoil from a slowing economy trumped warnings about persistently high inflation.
The decision to keep the reference rate at 6.75% followed a meeting that dragged on for hours longer than usual and an acrimonious dispute among policy makers that left economists almost evenly split on what the central bank will do.
Still, a small majority of those surveyed by Bloomberg predicted a resumption of increases given that inflation is running at the fastest pace in 26 years.
Policy makers aligned with Governor Adam Glapinski are growing more convinced that their aggressive yearlong campaign is sufficient to tame price growth, with inflation set to begin slowing next year. But a vocal minority on the Monetary Policy Council has challenged this assessment — and is pushing for more resolute action to tame inflation.
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.
Glapinski will hold a news conference to explain the decision at 3 p.m. in Warsaw on Thursday. The central bank chief said previously that a new set of economic projections should allow policy makers to decide in November whether to rule out any further increases.
His deputy, 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 MPC, but often speaks on behalf of Glapinski.
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.
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
–With assistance from Barbara Sladkowska, Piotr Bujnicki and Wojciech Moskwa.
