The National Bank of Poland's (NBP) 25-basis-point rate hike announced on May 9 did not only surprise the market, but provoked senior Polish officials into accusing the central bank of stabbing the economy in the back.
The central bank has been suggesting it could tighten policy for months, with the zloty remaining in a weakened state and - most importantly - inflation sticky above the 2.5% target. However, with the Eurozone crisis rearing its head once more, the Polish economy has shown signs of slowdown recently, and some have even suggested darkly the hike might also have been overly pushed by the trigger-happy Marek Belka, the high-profile central bank governor who has been predicting a hike for some months.
The move provoked an emotive outburst from Deputy Prime Minister Waldemar Pawlak, who heads the populist junior coalition partner Peasants Party and also serves as economy minister. "Unfortunately, the council stabbed our development processes in the back by totally unnecessarily and totally over-zealously raising interest rates," Pawlak told PAP news agency. "Another wave of the crisis is possible, and raising rates in this situation is a dramatic mistake. I hope that it will be possible to correct this decision if inflation begins to fall in the next couple of months."
More worryingly for Belka, Finance Minister Jacek Rostowski also weighed in with criticism - albeit, less direct. "The constitution guarantees the full independence of the Monetary Policy Council - but it does not guarantee its infallibility," Rostowski told reporters in the parliament, according to Reuters. "I hope that the Council's decision will not prove wrong in a couple of months."
Although Rostowski has crossed swords with Belka in the past, in general the government and NBP have managed to coordinate policy through the crisis thus far.
Whilst some analysts have sided with the NBP, most have expressed similar worries to the government. Danske Bank - clearly suspecting the NBP of being trigger happy - suggests in a note to clients that the picture will become clearer next week. "We are relatively certain that it was not a unanimous decision within the NBP's monetary policy council to tighten monetary policy," the bank's analysts write. "The discussion about whether it was right or wrong to hike could get more impetus next week when key macroeconomic data for Poland is set to be released. The most important of these will be the Polish inflation and labour market data. We expect both April wage growth and inflation to moderately surprise on the downside. What is most notable is that wage growth is quite subdued (we expect 3.3% year on year in April) indicating very little inflationary pressures from the labour market.
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