Wage Boom Plan Won’t Budge Poland on Rates

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Wage Boom Plan Won’t Budge Poland on Rates(Bloomberg) -- Surging inflation and a government plan to nearly double the minimum wage weren’t enough to make Poland abandon its pledge to keep borrowing costs at a record-low for for the foreseeable future.Buttressed by easier monetary policy in the world’s major economies, the central bank kept its benchmark interest rate at 1.5% on Wednesday. That was in line with analyst predictions and extends an unprecedented pause that began in 2015.The decision follows the government’s announcement that it will lift minimum salaries by almost 80% over four years if it wins elections next month, as polls predict. While some analysts fret that this may stoke inflation and dent Poland’s appeal among investors, Governor Adam Glapinski is apparently at ease with the wage plan.“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,” ruling-party leader Jaroslaw Kaczynski said Wednesday. “Nothing like that will happen, and this is the central bank’s view.”Poland stood pat as faster inflation prompted the nearby Czech Republic and Hungary to tighten monetary policy. As the U.S.-China trade war prompts the Federal Reserve and the European Central Bank to inject stimulus into the global economy, Glapinski says leaving borrowing costs untouched was the right course of action.Even so, inflation near a seven-year high has reinforced concerns among a minority at the central bank that interest rates may need to be raised. Two of the nine Monetary Policy Council members present at July’s meeting voted for an increase, while another two said they could do too if inflationary pressure intensified.That would risk undermining economic growth, which dipped a little to 4.5% from a year earlier in the second quarter. Glapinski has refused to rule out cutting rates if the euro area’s economic slowdown begins to hurt Poland.Investors don’t see a move in either direction 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.”\--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, Andrew Langley, Michael WinfreyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

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