Poland's Interest Rates Could Stay Unchanged for 20 Months, Says Central Banker

WARSAW—Poland's interest rates could stay unchanged for 20 months or more depending on the health of the economy, which has room to grow faster, a member of the central bank's monetary policy council said.

The European Union's largest emerging economy can grow at a rate above 4%, as it has in previous years, without creating imbalances or stoking excessive price inflation, Jerzy Osiatynski said in an interview.

"However, some of my colleagues do not share the view and think we are nearing the level of full capacity utilization," Mr. Osiatynski said. "I personally don't really understand what has happened over the last 10 years that would push the potential growth rate so much lower from over 5% to below 4%."

The 10-strong rate panel, which will see eight members depart in early 2016, cut the benchmark rate to 1.5% in March and said that it had ended the easing cycle, with the economy not showing any signs of a slowdown.

Poland's economy grew 3.4% last year fueled by improving domestic demand and growing foreign trade, a good result in comparison with other European markets but less than in some of its best years over the past two decades. Although the central bank and the finance ministry see expansion at the same pace of 3.4% this year, many economists are already penciling in faster growth as the job market is improving.

Mr. Osiatynski said that he is worried about fallout from the Greek debt crisis and the country's potential exit from the eurozone as well as about the reaction of companies and households across Europe to prolonged negative interest rates. Companies currently invest their excess capital in financial markets rather than in new production capacities, he said.

The European Central Bank's bond-buying program pushed others in Europe to ease their policies further, with interest rates at zero or below, in order to avoid excessive capital inflows that could hurt competitiveness and exports. The National Bank of Poland has repeatedly said that it would stick to the conventional policy of keeping interest rates positive in order not to inflate asset bubbles.

The Polish central bank is skeptical that capital inflows could boost the zloty excessively, Mr. Osiatynski also said.

In theory, Poland with its liquid market, good growth prospects, stability and higher-than-average interest rates should be the perfect target for such inflows, which would push the zloty higher. However, Mr. Osiatynski said that he is not certain that this will happen.

"We are not convinced. Poland doesn't play such a significant role in the emerging-markets currency basket," the rate setter said, adding that local and regional players don't have access to sufficient capital to fuel a more significant appreciation trend. "If we look even at the latest changes in the zloty, both the range and turnover are rather small."

The zloty has moved around four zlotys to the euro for most of April, prompting speculation of a possible central-bank intervention to weaken it. However, Central Bank Governor Marek Belka downplayed zloty strength at the beginning of the month.

One reason behind the Polish central bank staying put may be that for most in the monetary committee, 2015 is their final year in office. Eight panel members are leaving in early 2016 and Mr. Belka’s term ends a few months later. The governor recently said that the panel needs to begin considering its legacy.

Another rate setter, Jerzy Hausner, told The Wall Street Journal earlier this week that the ending of the panel's tenure is one of the reasons to keep borrowing costs unchanged for a prolonged period of time. Mr. Belka, whose first term ends in the middle of 2016, may be appointed for a second term by the country's president, who hasn't yet made his choices known.

Mr. Osiatynski, the only rate setter with a term beyond 2016, said that the panel remains vigilant in its actions despite most central bankers being in their final year.

"There is no feeling the rate panel is on 'an extended vacation,'" Mr. Osiatynski said. "Our decision already extends beyond the scope of this term and the latest perception of stability in monetary policy is rather a result of external factors. There are so many unknowns that we are waiting for them to die down allowing us to make better decisions."
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