March 6, 2019 / 5:38 PM / 14 days ago

UPDATE 1-Poland's c.bank sees rates on hold despite government spending hike

(Adds details, comments, quotes)

WARSAW, March 6 (Reuters) - A package of social spending and tax cuts in Poland does not raise the chance of interest rate increases in 2019 and 2020, the central bank governor said on Wednesday, after the bank cut its inflation projection following curbs on electricity prices.

Poland’s ruling Law and Justice (PiS) party said in February it would increase public spending by up to $10 billion a year, raising child subsidies, offering an extra payment to pensioners and improving transport infrastructure while also cutting taxes.

“No”, bank governor Adam Glapinski told a news conference when asked whether the planned fiscal easing raises the probability of rate hikes this and next year. Earlier on Wednesday the bank’s rate-setting panel of 10 including Glapinski decided to leave rates unchanged, as expected.

He repeated his view that interest rates may remain unchanged until 2022, but rate-setter Lukasz Hardt, also speaking at the conference, added that he would not say that rates might stay unchanged.

“In our view both the Monetary Policy Council rhetoric and the projections presented by the bank confirm that interest rates in Poland will remain stable until at least the end of 2020,” Piotr Poplawski, senior analyst at ING, said in a note.

POWER PRICE CAP

The central bank released its newest inflation projection on Wednesday, cutting its CPI forecasts due to smaller risks related to a potential jump in electricity prices. It now expects inflation this year at 1.2-2.2 percent compared to 2.6-3.9 percent seen in November projection.

The government has since proposed measures to prevent the increase in power prices, although critics say they are costly and might be considered illegal public aid.

“Freezing electricity prices has radically changed our projection,” Glapinski told the conference.

He also said that this year’s inflation would be slightly lower than the bank currently forecasts if the government did not launch the increased spending, which in turn is expected to stimulate the economy.

The central bank head reiterated that he was not considering resigning following media reports on high remuneration at the central bank and Glapinski’s alleged link to a corruption scandal at Poland’s financial market regulator.

Reporting by Pawel Florkiewicz and Alicja Ptak; writing by Agnieszka Barteczko and Alan Charlish, Editing by William Maclean

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