Poland keeps rate at record low as policy council changes loom
Poland left its benchmark interest rate at a record low after economic growth accelerated to a four-year high, prices fell for an 18th month, and the central bank continued with the scheduled replacement of most of its decision-making board.
The Monetary Policy Council, led by Governor Marek Belka, kept the sevenday reference rate at 1.5 percent on Wednesday, matching the predictions of all 36 economists in a Bloomberg survey. While the council has kept the cost of borrowing unchanged since March of last year, Polish monetary policy is now facing both fiscal changes advocated by the three-month old Law & Justice government as well as the expiring terms of eight of the 10-member rate-setting board. This coincides with an 18month bout of falling prices and Belka, whose six-year term ends in June, said the bank's inflation projection next month will lag its previous forecast.
"We don't expect immediate changes in monetary policy, a bit softer tone may be in the cards, though," Ernest Pytlarczyk, chief economist at MBank SA, said in an e-mailed comment before the decision. He still sees a possibility of a rate cut this year as the newly elected members of the council "will be more responsive to low inflation and government financing costs."
Three new members joined the council this month, and five others will follow in March. All the new members will be appointed by either the ruling Law & Justice Party, which took control of Poland's two houses of parliament after October elections, or by former party member President Andrzej Duda. The process, while scheduled for this year, has raised concerns about the central bank's independence after Law & Justice revamped the constitutional court and public broadcaster in changes that some European Union governments criticized as undermining democratic checks and balances.
The zloty traded 0.1 percent stronger at 4.4007 to the euro at 12:37 p.m. after the first-ever sovereign downgrade by Standard & Poor's last month spurred a selloff that sent the currency to a four-year low above 4.50 last month.