WARSAW: Poland's central bank management board member Andrzej Raczko says the bank's next projections, due in March, will show much lower inflation expectations, and may also include higher economic growth forecasts.
But Raczko told Reuters in an interview there was also a small risk that deflation might hurt the Polish economy, signalling that he agreed with central bank governor Marek Belka that there was still room for a rate cut.
In November, the central bank said in forecasts overseen by Raczko that inflation would be 1.0 and 1.6 percent in 2015 and 2016, respectively, well below the central bank's target of 2.5 percent. Economic growth was seen at 3.0 and then 3.3 percent.
"Given the current information, we can say that the path of inflation will be much lower than (assumed) in November. There is a good chance that the path of gross domestic product will be higher than what we showed in November," he said.
He added that deflation might last months longer than previously expected. The Polish central bank said last year it saw deflation lasting until May 2015.
"We can already see that low fuel prices translate into core inflation. It is currently 0.5 percent, but may begin to approach the vicinity of zero," he said.
Core inflation excludes food and energy prices. The broader CPI index fell by a greater-than-expected annual 1 percent in December, marking the sixth consecutive month of negative CPI readings and the deepest fall in over three decades.
"We thought that deflation will continue until May. Today, it is clear that it will last longer. We are talking about months here," Raczko said. Despite deflation concerns, Raczko said the government's 2015 estimate of GDP at 3.4 percent was justified, with lower fuel prices and the European Central Bank's money-printing programme seen spurring demand for Polish goods, both at home and abroad.
Raczko also said that the negative effect of the Swiss franc surge, which made it harder for some 550,000 Polish mortgage holders to repay their debt, may be offset by cheaper petrol and higher economic growth in the euro-zone, supporting Polish GDP.
He said it would be wrong to compare the situation in Poland to that in Hungary, where the government last year ordered that all mortgages be converted into local currency at banks' cost.
Raczko suggested there was no way that Polish authorities could follow the Hungarian example.
"In Hungary, the (non-performing loans) were at 24 percent, while in Poland it is 3 percent. In Hungary, the mortgage interest rate was fixed at a nominally high level, while in Poland it is variable and consists of a three-month CHF LIBOR plus a 100-200 basis-point margin."
Many homebuyers in central and eastern Europe took out Swiss franc-denominated mortgages in the early 2000s. Despite warnings about the risks from some economists at the time, they opted for loans which carried interest rates in the low single digits over paying double-digit rates on local currency mortgages.
With the franc up 20 percent against the zloty since mid-January, these borrowers now face a huge jump in their mortgage repayments.
On Sunday, Poland's Deputy Prime Minister Janusz Piechocinski said the government would present on Wednesday measures aimed at alleviating the Swiss franc mortgage crisis.
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