The Polish Monetary Policy Council's "wait and see" strategy is justified and inflationary proposals floated ahead of elections later this year could result in rates staying at their current level longer than expected, central banker Henryk Wnorowski said.
The central bank left its main interest rate on hold at 6.75% in May. Governor Adam Glapinski said the bank was not necessarily ending its cycle of interest rate hikes and was ready to act if needed but added that he hoped it would be possible to start discussing rate cuts late this year.
"The current 'wait and see' strategy of the MPC seems to be justified, because ... inflation at 14.7% (in April) is very high," Wnorowski said.
"The current path of inflation decline seems realistic, but if we notice that something is wrong, that the rate of disinflation deviates from the one included in the projection, we will go back to raising (rates)," he added.
Wnorowski said inflation will drop to single digits in 2023, but various proposals floated by political parties that would increase spending may have a pro-inflationary effect next year.
One of the current government's proposals is to increase child benefit payments, which, according to economists, may make fighting inflation harder.
Elections are due in October or November.
"I am aware that the end of the election year will provide us with a new inflationary impulse. Let's wait for the whole package of proposals, then it will be possible to calculate it," Wnorowski said.
But he noted that the proposed changes would probably enter into force in 2024, when inflation will be lower, below 10%, and responding to them by raising rates now "would not be compatible with the credibility and stability of the central bank," he said.
"If economic growth turns out to be even faster and taking into account the promises of the election year, it may turn out that we will stay in the 'wait and see' phase longer than it seemed before. It may be so," said the MPC member.
Wnorowski said that now is not the time to even start discussing interest rate cuts, let alone take such decisions. (Reporting by Pawel Florkiewicz; Editing by Hugh Lawson)