Euro could mean higher rates

Members of the National Bank of Poland's (NBP) Monetary Policy Council (RPP), have voiced the opinion that at least one more interest-rate hike will be necessary this year if Poland is to prepare for euro adoption in 2011, despite easing inflation.

Last week Prime Minister Donald Tusk and the NBP reached an agreement on bringing Poland into the euro zone in 2011.

"We agreed 2011 should be the year when Poland satisfies all criteria and when the European Commission agrees Poland can join the euro zone," Tusk said, adding that a more specific timetable for adoption would be worked out next month.

But the firmer commitment to joining the euro zone in less than three years means that Poland may require tighter monetary policy, RPP members told the media last week. Tusk's announcement two weeks ago that it was the government's goal to adopt the euro in 2011 took many by surprise.

At least one more hike

Andrzej Wojtyna, who is considered one of the key swing voters on the 10-member RPP panel, said that Poland would need at least one more rate hike this year.

"A clear declaration on adopting euro in 2011 may require a more restrictive monetary policy," Wojtyna said.

Another member of the council, Halina Wasilewska-Trenkner, echoed this view. "The probability [of a second rate hike] is rising due to preparations to adopt the euro but also because second-quarter data showed that economic growth and domestic demand are still strong," she said.

Wage fears

Wages grew by 9.7 percent y/y in August - below expectations, but still relatively high. Wojtyna cited that as one of the main concerns.

"The dynamic of wage growth is too high. It is still the key factor for monetary policy," Wojtyna said, adding that August inflation - which at 4.8 percent was slightly below market expectations - was not an argument for changing the monetary policy scenario. "I don't see the argument for postponing a decision [on raising rates]," Wojtyna said. (Reuters)