Polish c.banker Kotecki: hard to say how high rates could go

WARSAW, May 17 (Reuters) - Polish interest rates will continue to rise, but it is difficult to predict their final level, as the government's fiscal policy reduces the effectiveness of the Monetary Policy Council's
MPC fight against inflation, central banker Ludwik Kotecki said.

Poland started a tightening cycle in October and its main interest rate currently stands at 5.25%. Consumer prices in Poland in April hit 12.4% from a year earlier, according to the statistics office, its highest since 1998.

"Fiscal policy and other government actions are one of the main factors that make it difficult to set a target for interest rates and the pace of lowering inflation at the moment," Kotecki told Reuters.

"The MPC digs a hole under inflation, tries to make it fall there and stay there. And at that time the government is heating up this inflation with its various actions, including mainly looser fiscal policy ...," he added.

Poland will have two years of loose fiscal policy in 2022 and 2023, and in addition, the election year 2023 does not encourage us to expect its tightening, the MPC member said.

In recent months, the government has introduced a number of measures aimed at compensating for the high rate of price growth, which it called the anti-inflationary shield. It includes, for example, a reduction in value-added tax on electricity, heat, fuel and food.

"It is a fight against the symptoms of inflation, not its causes. Moreover, the shields, by increasing the public finance deficit, actually increase demand pressure, that is the cause of inflation," Kotecki said.

He said by June and July the inflation rate may rise by another 1-2 percentage points, and then the pace of price growth should start to stabilise slightly, with a slight downward trend.

"After the expiration of the inflation shield we will see a jump in inflation by some 3-4 percentage points, maybe more. Then we will return to this real economic inflation. I assume that it will happen next year," the MPC member said.

Inflation may return to the 1.5-3.5% inflation target only at the end of 2024 and this is a "relatively optimistic" scenario, added Kotecki. (Reporting by Pawel Florkiewicz; Editing by Jacqueline Wong

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