Wage Boom Plan Won’t Budge Poland on Rates

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Wage Boom Plan Won’t Budge Poland on Rates(Bloomberg) -- Not even a surge in inflation and government plan to nearly double hike wages over four years will steer Poland’s central bank away from a promise to keep borrowing costs unchanged for the foreseeable future.The opposing forces of buoyant consumer price growth at home and the global economic slowdown have already triggered debate in the Monetary Policy Council over the future direction of interest rates. Still, all 25 economists in a Bloomberg survey expect policy makers to keep the benchmark unchanged at record-low 1.5% on Wednesday.The ruling party just announced plans to raise the minimum wage by almost a third by end-2020 and by a whopping 78% over four years if it holds on to power after the Oct. 13 election, as opinion polls predict. While some analysts are concerned that this may add to price pressures and deteriorate the country’s relative appeal for investors, Governor Adam Glapinski is apparently at ease with the proposal.“At it happens, last night I spoke to the central bank governor, who presented initial estimates of whether these plans will negatively impact the economy,” Jaroslaw Kaczynski, the ruling party leader, said Wednesday about the wage proposal. “Nothing like that will happen, and this is the central bank’s view.”The National Bank of Poland stood pat after accelerating price growth prompted its regional peers, the Czech Republic and Hungary, to start tightening last year. Now, with the U.S.-China trade war prompting the U.S. Federal Reserve and the European Central Bank to inject stimulus into the global economy, Glapinski and his colleagues at the MPC are again expected to hold fast.“We assume that the MPC’s initial reaction to the announced changes will be neutral, and the subject of wage increases may surface only in the event of some strong inflationary pressure,” analysts from Citibank’s Polish unit said in a note about the wage proposal.Inflation hovering near a seven-year high has reinforced concerns among a minority on the central bank’s board that interest rates may need to be raised. But Glapinski refused last month to rule out cutting rates if the slowdown in the euro area begins hitting the Polish economy.Economic growth of 4.5% in the second quarter has reduced the risk of the latter scenario, while concern over the surge in consumer prices prompted two of the nine council members present to vote in favor of hiking rates in July.Another two said they could also potentially vote for tightening if inflationary pressures intensified, although such a move might undermine the government’s efforts to spur growth. Investors have also pared back bets and no longer see a quarter-point move in the next 12 months.“We see a stronger risk of policy easing in 2021, if economic growth will slow significantly,” said Jakub Rybacki, an economist at ING Bank Slaski in Warsaw. “We expect the Council to continue its forward guidance of no change in rates in the coming quarters.”(Updates with more on debate around minimum wages, from third paragraph)\--With assistance from Barbara Sladkowska.To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net;Adrian Krajewski in Warsaw at akrajewski4@bloomberg.netTo contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Wojciech Moskwa, Andrew LangleyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.


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