By Monika Rozlal
July 21 (Bloomberg) -- The Polish central bank must continue raising interest rates even as economic growth slows because accelerating inflation prompts demands for higher wages, said Monetary Policy Council member Marian Noga.
``The faster-than-expected economic slowdown would have dismissed the need for interest rate increases if wages hadn't risen at such a quick pace,'' Noga said in a July 18 interview. ``Since second-round effects have emerged, policy tightening must be continued.''
Evidence of slowing growth in the June report on industrial output may fail to deter policy makers from rate increases. They have raised the benchmark seven-day rate a total of 2 percentage points to 6 percent since April 2007 as growing wages spur demand, keeping inflation above the 2.5 percent target since November.
``Our top priority is the inflation target,'' said Noga, who estimates the inflation rate will rise to between 4.9 percent and 5.1 percent in August from 4.6 percent in June and will be at 4.4 percent in December.
Industrial output rose an annual 7.2 percent in June, compared with the 9.2 percent expected by economists in a Bloomberg survey. That prompted Noga to revise this year's economic growth forecast to 5.4 percent from 5.5 percent.
An index measuring manufacturing orders fell in June to the lowest in six years while export growth slowed in May to 12.2 percent, less than half the annual pace recorded in April.
No Obstacle
Exporters accuse policy makers of strengthening the zloty too much with their decisions, which makes sales unprofitable.
``We realize that our decisions impact on the zloty but it can't be an obstacle for us,'' Noga said. ``It's not the zloty behind the slowdown, but the weakening global economy.''
Noga expects freeing energy prices as of next year will drive up inflation to almost 5 percent in January before slowing to below 3.5 percent in the middle of 2010.
Annual producer price growth of 2.7 percent in June, unchanged from May, allows for optimism, as ``producer prices impact on consumer prices with some delay and the data showed that there is no price pressure,'' he said.
The central bank should monitor industrial output and corporate wages in July, August and September before considering raising rates again as the reports ``will show how the economy is doing,'' Noga said.
To contact the reporter on this story: Monika Rozlal in Warsaw at mrozlal@bloomberg.net.
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