(Releads with finance ministry report, detail)
By Karolina Slowikowska
WARSAW, July 3 (Reuters) - Poland's government pushed on
Friday for further interest rate cuts, saying lower wage demands
and rising unemployment allowed for more monetary easing, but a
central banker said inflation was too high for such a policy.
The finance ministry, which was recently forced to raise its
2009 deficit target as the sharp showdown hits revenues, said it
expected the central bank to cut its key rate to 3.0 percent
from a current all-time low of 3.5 percent by year-end.
"(...) the worsening of the labour market situation and
lower pressure on wage rises will act towards lower inflation,
which will in turn favour monetary policy easing," the finance
ministry said in a report on the state of the Polish economy.
"As a result, we expect the central bank's key interest rate
to fall to 3.0 percent by the end of the year."
The statement is unusual because the finance ministry has in
the past generally refused to comment on the central bank's
policy, saying the bank was independent and should remain free
from political pressures.
It also came after a member of the central bank's Monetary
Policy Council (MPC), Marian Noga, who just a week earlier was
speaking in favour of further rate cuts to help the ailing
economy, said he now believed inflation would not only fail to
ease in June but could rise significantly by the end of the
year.
He told TVN CNBC that policymakers could adopt a
wait-and-see approach on interest rates in coming months.
"It is clear that there is no room for interest rate cuts
this year," Noga said.
"I don't see any reason to either increase or cut interest
rates... Our policy bias is rather neutral," he added.
SURPRISE
The finance ministry said on Wednesday it expected inflation
to inch down to 3.4 percent year-on-year in June from 3.6
percent in May, sending a wave of a surprise among some analysts
who expected the forecast to be higher, and fuelling
expectations of further rate cuts ahead.
Noga downplayed the ministry's optimism and said price
growth would remain stubbornly high, at around 3.6 percent this
month, and could reach 4.0 percent at the end of the year, well
above the central bank's target of 2.5 percent.
The comments of Noga, who had in the past favoured higher
rates but recently switched to back cuts, came after one of the
central bank's biggest doves, Miroslaw Pietrewicz, said there
should not be another cut, at least not before September.
"Inflation is now key. I think it is too early to buy into
the finance ministry's optimism. If old doves such as Pietrewicz
talk about keeping rates flat, central bankers obviously are
being cautious," said Maja Goettig, chief economist at BPH Bank.
"I would be particularly cautious on the ministry's forecast
that inflation will ease in June. There is considerable risk
from food prices due to bad weather conditions."
Noga also said that instead of cutting the key reference
interest rate, policymakers could opt to further slash the
required reserve rate or the deposit rate as both could make it
easier for banks to increase lending.
He also said Warsaw, which has put on the back burner its
ambitious plans to adopt the euro in 2012, should now aim for
euro entry in 2014.
(Writing by Karolina Slowikowska; Editing by Toby Chopra)
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