An interest-ing development

Polish wages skyrocketed in March, reinforcing expectations that the central bank will raise interest rates at its next policy meeting this month. According to data from the Central Statistical Office, the average wages in Poland's corporate sector were 9.1-percent higher last month, y-o-y, well above the expected 6.4 percent.

"It doesn't leave a shadow of a doubt that interest rates will be raised this month," said Radosław Bodys, a central European economist with Merrill Lynch's London branch. Along with złoty and bond-yield increases, investors see this as evidence that the central bank will have to respond. The economy, growing at the fastest pace in 10 years, is helping to keep unemployment down and to retain a larger number of Poles who might otherwise seek work abroad. However, some companies have expressed annoyance at the labor situation and are raising wages to attract and retain employees.

Poland's unemployment rate, which was at 20 percent as recently as two years ago, has significantly fallen in the past year, and is expected to fall below 14 percent in April, said Labor Minister Anna Kalata. Finance Minister Zyta Gilowska posited that the unemployment rate could drop below 12 percent by the year's end. Increasing employment, strong economic growth and the March wage jump are set to be the key topics of discussion during next week's Monetary Policy Council (RPP) meeting. The RPP is to decide whether to increase the main rate above the four-percent level set in February.

Several central bankers have hinted that a hike is overdue. However, central bank chief Sławomir Skrzypek and others have expressed doubts about the necessity of large-scale monetary tightening. (Reuters)