Polish budget policy could make it harder to tame inflation

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WARSAW (Reuters) – Bringing Poland’s inflation down to the central bank’s target over the next two years will be difficult if the government increases its efforts to boost consumption, Monetary Policy Council (MPC) member Przemyslaw Litwiniuk said on Saturday.

Last month, the government announced a plan to help borrowers struggling with higher rates on mortgage loans amid the highest inflation in more than two decades. Poland has also lowered taxes on energy to tame the effects of higher prices for consumers.

“(Hitting the inflation target) depends on budget policy, if we keep observing more transfers of funds for consumption, it will be very difficult. No rate hikes, even to the level of the real interest rate, will change that,” Litwiniuk told TVN24 television.

Pointing to campaigning ahead of general elections planned for 2023, Litwiniuk – a university professor who was appointed to the MPC in January – said Polish inflation may remain elevated until 2025.

Poland started a tightening cycle in October, later than central banks in the Czech Republic and Hungary. Its main interest rate currently stands at 5.25%, while inflation hit 12.4% year on year in April compared to the central bank’s inflation target of 2.5% with a tolerance of +/-1 percentage point.

The mortgage plan would allow borrowers to make interest-free repayments on some installments and create an aid fund, worth 3.5 billion zloty from commercial banks’ profits.

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