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WARSAW, May 17 (Reuters) - Poland’s central bank may keep interest rates at their current record lows until the end of 2018 because inflation is expected to stabilise below the bank’s target, the head of the bank reiterated on Wednesday.
Speaking after the bank’s rate-setting panel kept the key rate at 1.50 percent for the 26th consecutive month, central bank Governor Adam Glapinski said he was fine with the zloty’s current exchange rate despite its recent gains.
“In my opinion, even by the end of 2018 there may not be a need for an interest rate hike if inflation is at a level at which it is forecast,” he told a news conference, adding rates would not be raised this year for sure.
Glapinski said the central bank currently expects inflation to remain at about 2 percent for a “longer” period of time.
The central bank has an inflation target of 2.5 percent, give or take one percentage point.
Consumer prices ended more than two years of declines in November last year and price growth hit 2.2 percent in February, pushing the inflation-adjusted interest rate into negative territory for the first time in five years. Inflation then slowed to 2.0 percent in March and April.
Poland’s $490 billion economy grew by an annual 4 percent in the first quarter, the fastest pace in over a year and ahead of analysts’ expectations, confirming a rebound in the European Union’s largest eastern member.
The acceleration was probably driven by a pick-up in investment and gains in consumption that were supported by record-low unemployment and new child benefit payments introduced last year, analysts have said.
“I would be surprised if this year’s GDP growth did not reach 4 percent,” Glapinski said, adding there were no imbalances, bubbles or other threats present in the economy. “And we have a moderate growth rate of wages.”
Nevertheless, Glapinski said the rate-setting Monetary Policy Council’s was carefully observing the labour market when assessing if there was a potential need to change its current wait-and-see policy stance.
The MPC’s last interest rate move was a half-percentage-point cut in March 2015. Analysts polled by Reuters expect the bank will keep rates stable until a 25-basis-point increase in the second quarter of 2018 .
Speaking about the zloty, Glapinski said he was fine with the current exchange rate, adding that it facilitated economic growth.
The Polish currency has gained about 7 percent versus the euro since early December and traded at 4.1899 per euro by 1526 GMT.
$1 = 3.7604 zlotys Reporting by Pawel Sobczak and Marcin Goettig; Additional reporting by Bartosz Chmielewski; Writing by Marcin Goettig; Editing by Larry King