Poland moves to tightening bias as economy burgeons

Poland held interest rates steady on Tuesday but adopted a "tightening" policy bias in a signal the European Union newcomer's central bank was ready to hike rates in response to burgeoning economic growth.
The central bank kept the main rate at 5.25 percent, holding the borrowing costs for the 10th month running as expected.
But signs the economy was growing faster than expected, uncertainty over the impact on prices of EU accession on May 1, and unclear prospects of fiscal reform pushed the policy bias to "tightening" from "neutral", analysts said.
Inflation was at a benign 1.7 percent in March, but is seen rising to above two percent as soon as this month with food price growth ahead of EU entry contributing more than expected.
"In an environment where growth probably reached six percent in the first quarter, industrial output hit a record high and we are seeing more signals of price pressure, such a decision was natural," said Radoslaw Bodys, economist at JP Morgan.
The Polish economy has switched to high gear in past months, surprising both analysts and central bankers and showing more inflation pressure could be building over the horizon.
Analysts said the bias tightening was meant to prepare the ground for potential interest rate hikes later this year, but borrowing costs were likely to stay on hold for another few months until the price effects of EU entry were clearer.
"They will raise rates either late in the second quarter, or in the third quarter and the latter looks more likely, for we will have to wait a couple months to see what inflation will do," said Zsolt Papp, economist at ABN Amro in London.
"There certainly is no great pressure to raise rates now."
A small majority of analysts polled by Reuters last week had expected the main rate to stand unchanged at the end of the year, but nearly all expected a hike within the next 12 months.
Markets showed little reaction to the bias change and are awaiting a central bank news conference at 1400 GMT.
Analysts say the short-term price effects of EU accession remain largely unknown even after studies showed inflation rising less than one percentage point per year after Poland joins the richer and more expensive Western bloc.