Bloomberg News

Poland May Raise Benchmark Rate for Fourth Time in 2011

June 07, 2011

(Updates survey, zloty, forward-rate agreement from second paragraph.)

June 7 (Bloomberg) -- Poland’s central bank will probably increase its benchmark interest rate for the fourth time this year as consumer prices rise faster than policy makers target.

The Narodowy Bank Polski in Warsaw will increase the benchmark seven-day interest rate by a quarter-point to 4.5 percent, according to 26 of 33 economists surveyed by Bloomberg. The decision will be announced tomorrow after 12 p.m. Seven analysts estimate the rate will remain unchanged. Rate setters start their two-day meeting today.

Policy makers said last month that they accelerated the pace of rate increases to prevent rising global food and fuel prices from having second-round effects on the economy. The central bank has boosted the benchmark rate by 75 basis points in three steps this year to stem inflationary pressures that may spur wage demands.

“After the May rate increase, the Monetary Policy Council stated that picking up the speed of rate increases was more efficient in reducing the risk that inflation above the target will persist,” said Cezary Chrapek, an economist at Citibank Handlowy in Warsaw. “Since then, factors justifying a faster rate increase have strengthened.”

The zloty has declined 1.3 percent since May 11, when the central bank increased the benchmark rate for a second straight month, and traded at 3.9485 per euro at 2:45 p.m. in Warsaw, compared with 3.9579 late yesterday. Three-month forward-rate agreements are trading 30 basis points higher than the three- month Warsaw interbank offered rate, the same spread as before last month’s rate increase.

Eastern Europe, including Hungary and Russia, are also raising interest rates to slow inflation.

Inflation Accelerates

Poland’s inflation rate rose to 4.5 percent in April from 4.3 percent in March. Companies and households boosted their forecasts for inflation over the next 12 months to 4.3 percent in May from 4 percent the month before, according to a central bank survey published May 31.

Corporate wages rose 5.9 percent from a year earlier in April, the most since December 2009. That pace may show “there is a real threat of second-round effects in the economy,” central banker Jerzy Hausner told the PAP news service May 30.

Economic growth expanded an annual 4.4 percent in the first quarter, remaining near the fastest pace since 2008, as private consumption exceeded expectations and investment recovered.

Gross domestic product, wages and April retail sales, which rose the most since the start of 2008, “may be just enough to lead the MPC to hike again, preemptively,” said Magdalena Polan, senior economist at Goldman Sachs Group Inc. in London, who previously forecast that the next increase would be in July.

Central Bankers

Of the 10 Monetary Policy Council members who have spoken publicly since the May rate increase, only Elzbieta Chojna-Duch called for limiting the scale of rate increases, saying that unemployment near the highest level in four years reduces the risk that price growth will fuel wage demands.

Poland’s jobless rate fell to 12.2 percent in May from 12.6 percent the previous month, the Labor Ministry estimated today.

Others policy makers indicated that borrowing costs should rise, with Zyta Gilowska telling PAP on May 16 that Poland can’t allow the benchmark rate to stay below the level of annual inflation “for a sustained period” and that food and fuel price increases may spill over to other categories.

--With assistance from Barbara Sladkowska in Warsaw. Editors: Balazs Penz, Andrew Langley, Willy Morris

To contact the reporters on this story: Dorota Bartyzel in Warsaw at;

To contact the editor responsible for this story: Balazs Penz at

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