Poland Stands Pat as Romania Nears Rate Cut

Central banks in Poland and Romania will likely hold interest rates steady in the face of slowing inflation as policymakers in both countries weigh whether tax and spending measures add to price pressures.

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Poland’s central bank is set to keep the benchmark rate at 5.75% on Thursday, while Romania holds off entering an expected easing cycle with rates unchanged at 7%, according to all economists polled in two Bloomberg surveys. 

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While Polish central bank Governor Adam Glapinski has ruled out rate cuts through the end of the year, Romania’s monetary policy chief, Governor Mugur Isarescu, has signaled that his authority may join other regional peers in cutting rates as early as May. 

Polish policymakers are gauging the effect of a higher value-added tax on food and the lifting of energy price caps on consumer prices, which could trigger a rebound in inflation later this year. Some members of the rate-setting Monetary Policy Council have said rate cuts still shouldn’t be ruled out. 

Central bankers in Bucharest, however, see more room for maneuver after fiscal pressures at home prompted them to refrain from cuts. Romania has the second-highest key rate in the region after Hungary — and still one of the highest inflation rates in the European Union at 7.2%. 

“The central bank is preparing the ground for a cautious easing cycle ahead,” ING economist Stefan Posea said of Romania, forecasting a cut to 6% by year-end. But officials at the National Bank of Romania will have an eye on Warsaw, he said, “since it would be difficult to imagine the effective rate falling below Poland’s key rate.”

Glapinski, who faces a probe amid accusations of engaging into political partisanship, is likely to be quizzed at his news conference on Friday whether he stands by his earlier remarks that borrowing costs won’t move in the near future. Polish inflation slowed unexpectedly sharply in March, to 1.9%.

Romania’s government is struggling to contain a budget deficit, which is forecast to reach 5% of economic output this year. The country also faces four rounds of elections and growing demands for higher wages and pensions. 

Policymakers in Bucharest lowered this year’s inflation forecast to 4.7% from a previous estimate of 4.8%, but warned that domestic electoral and fiscal risks combined with geopolitical uncertainties still cloud the outlook. 

With assistance from Barbara Sladkowska and Joel Rinneby.

This article was generated from an automated news agency feed without modifications to text.

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