INTERVIEW-Polish rates should rise now -central banker

WARSAW, Aug 29 (Reuters) - Poland should nudge interest rates up now to avoid spikes in inflation, central banker Kamil Zubelewicz said, taking a minority view among the country's 10-strong rate-setting panel.

The central bank left rates unchanged last month at a record low of 1.5 percent, and Governor Adam Glapinski said he expected them to stay there until the end of 2018, based on how inflation was expected to develop.

The central bank aims to nudge inflation up to 2.5 percent in 2019.

"Rates should be increased gently now, as the economic situation is favourable," Zubelewicz told Reuters in an interview cleared for publication on Tuesday.

A small hike now would avert the need for a steeper one in the future, he added.

"This move would have a positive impact on the zloty's exchange rate, but it would have little (negative) effect on investment, which depends on the cost of lending only to a very small extent when rates are so low."

The current Monetary Policy Council (MPC) was formed after the conservative Law and Justice (PiS) party won parliamentary elections in late 2015. Polish benchmark rates were last changed in March 2015, when the previous council cut them by 50 basis points.

A rate hike would dent consumer demand and prevent a spike in consumer prices, making the path to achieving the 2.5 percent inflation target smoother.

"It would be worth taking the step to avoid risk factors related to rising commodity prices or exchange rate fluctuations, and it would also prevent higher interest rate hikes in the future," Zubelewicz said.

He said an unexpected rise in food prices in July - when consumer price inflation rose to 1.7 percent from 1.5 percent in June, was a cause for concern.


Zubelewicz admitted chances of policy being tightened soon were slim.

"At the moment, a wait-and-see approach is in place, which assumes that the current situation is rather good, while I think it is important to look ahead .... and move away from policies that favour an unnatural weakening of the zloty's exchange rate," he said.

Glapinski has said the currency's recent appreciation was not a concern. On Tuesday the zloty traded at 0.2 percent weaker versus the euro. It has firmed about 3.4 percent against the common currency since the start of the year.

Zubelewicz said he expected the economy to grow as projected this year. The state budget envisages growth at 3.6 percent.

"I hope that investment will rebound in the third quarter... which could contribute to a faster GDP growth in coming quarters," Zubelewicz said.

He added that expectations of a higher influx of EU funds would spur public and private domestic investment.

But the outlook was less certain for 2018, when some of the government's social programmes are being phased out and the impact of the lower retirement age being introduced this October will become more pronounced.

Preliminary estimates this month showed gross domestic product (GDP) grew 3.9 percent year-on-year in the second quarter, above forecasts.

(Writing by Lidia Kelly; editing by John Stonestreet)