March 30, 2015 / 10:01 AM / 4 years ago

Polish central banker Bratkowski: strong zloty no argument for rate cuts

WARSAW, March 30 (Reuters) - Polish central banker Andrzej Bratkowski said on Monday he would oppose cutting interest rates further in response to gains by the zloty, because such easing could lead to imbalances and force rapid rate hikes next year.

Bratkowski also said that considerable space remained for the zloty to strengthen before it hurt the competitiveness of Polish exports.

“I do not share the opinion that a further strengthening of the zloty would be an argument for a return to cutting interest rates,” he said in comments to be published on his blog on Monday.

Earlier in March, central bank governor Marek Belka warned sharp zloty gains could unleash a spiral of deflation and economic weakness, although that was unlikely.

The central bank declared an end to its easing cycle in March, pushing the zloty to a two-year high against the euro, as traders bet Poland’s relatively high rates will attract cash from the European Central Bank’s massive monetary stimulus

Markets accordingly began to price in a 60 percent chance for a 25-basis-point rate cut by December.

“In my opinion the only justification for cuts could be another weakening of the euro zone economy connected with an investment slowdown deeper than I currently expect,” said Bratkowski, one of the 10 members of the Monetary Policy Council.

He also said that although rate cuts might shorten any period of deflation by a few months, they could also force relatively quick rate hikes in 2016, which could lead to zloty gains then and unsustainable strength of domestic demand.

“A strengthening of the zloty seems to carry a smaller risk now, because there is still considerable space for appreciation which would not threaten export competitiveness and the improvement in the euro zone’s economy will support exports growth,” he said.

Bratkowski said he expects Polish economic growth to accelerate to 4.6-4.8 percent in 2016 from 3.1-3.3 percent this year. He said inflation could accelerate to 1.5 percent in the first quarter of 2016. It now stands at minus 1.6, its lowest level in at least three decades.

Bratkowski also said he views the bank’s 50-basis-point rate cut in March as a compromise: quickly cutting rates deeper now, in exchange for not cutting them in the future.

Poland has cut its benchmark interest rate by a total of 325 basis points since late 2012.

Bratkowski’s comments in Polish are available on his blog: www.forward-looking.pl (Reporting by Pawel Sobczak and Marcin Goettig; Writing by Marcin Goettig)

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