Yahoo News 
Poland Must Exercise Monetary Caution as Risks Remain, IMF Says
(Bloomberg) -- Poland should be cautious before returning to interest-rate cuts as the potential for wage growth creates pressure on prices, the International Monetary Fund’s senior representative in eastern Europe said.
Most Read from Bloomberg
In DNC, Chicago’s Embattled Transit System Faces a High-Profile Test
How Chicago’s Gigantic Merchandise Mart Is Still Thriving as Office Space
Gottheimer Calls for Rail Riders to Be Reimbursed for Delays
Wage pressure could prompt companies to pass on higher labor costs to retail prices rather than absorbing them, the IMF’s Geoff Gottlieb said in an interview in Warsaw. Such a development would “further delay” efforts to return inflation to target, he said.
“We see grounds for caution before resuming an easing in monetary policy,” Gottlieb said.
The comments align with the hawkish stance by the National Bank of Poland, which has increasingly come under scrutiny from economists who have urged policymakers to open a path to monetary easing. Citigroup Inc. and PKO Bank Polski SA have said a failure to turn to rate cuts risks harming the European Union’s sixth-largest economy.
Central bank Governor Adam Glapinski said last month that monetary easing is likely off the table until 2026 due to risks over price stability, a position that’s been questioned by other members of the rate-setting Monetary Policy Council. Traders have also ramped up bets on monetary easing in the wake of weak US data, which triggered a repricing of the Federal Reserve’s rate path.
But Gottlieb, who declined to comment on Glapinski’s rate guidance, said that risks to bringing inflation fully under control linger.
“While there are several factors, a primary concern is that wage growth remains exceptionally strong amid an accelerating economy,” Gottlieb said.
‘Long Passed’
The central bank has refrained from lowering interest rates since October, keeping the benchmark rate at 5.75% even as inflation has slipped within policymakers’ target range of within a percentage point of 2.5% this year.
The IMF official welcomed the decision by Prime Minister Donald Tusk to end temporary inflation shields, such as restoring a 5% value-added tax rate on food and partially unfreezing energy prices.
Poland’s inflation peak — at 18.4% in February 2023 — has “long passed,” Gottlieb said, pointing to the costly set of measures that were available to citizens at all income levels.
Still, the IMF has recommended Poland prepare policies “that can be activated quickly amid future shocks and that provide temporary relief only to the most vulnerable households,” Gottlieb said.
Poland should also create a “clear and credible plan” to reduce the budget deficit in the coming years to “help increase financial market confidence and tighten borrowing costs relative to advanced economies,” he said.
The extra yield investors demand to hold Poland’s local-currency notes over US Treasuries or German bunds tumbled this month. Poland’s fiscal gap is expected to amount to 5.3% of economic output this year and shrink to 4.5% in 2025, according to a Bloomberg survey of bank economists.
Gottlieb said higher defense spending in Poland and elsewhere is “likely to be a largely permanent feature of government budgets going forward.” Such long-lasting spending increases should be offset by savings elsewhere in the budget rather than financed by “ever-increasing debt” to ensure they are sustainable, he said.
--With assistance from Maciej Martewicz.
Most Read from Bloomberg Businessweek
Inside Worldcoin’s Orb Factory, Audacious and Absurd Defender of Humanity
New Breed of EV Promises 700 Miles per Charge (Just Add Gas)
There’s a Gender Split in How US College Grads Are Tackling a More Difficult Job Market
©2024 Bloomberg L.P.
