Bloomberg News

Poland Raises Benchmark Rate to Curb Prices, Signals Pause

June 08, 2011

(Updates with comment from central bank in first, third, sixth, 10th paragraphs, economist in eighth.)

June 8 (Bloomberg) -- Poland’s central bank increased its benchmark interest rate for the fourth time this year as consumer prices rise faster than policy makers’ target and signaled it will pause before further tightening.

The Narodowy Bank Polski raised the seven-day interest rate by a quarter point to 4.5 percent today, matching the expectations of 26 of 33 economists surveyed by Bloomberg. Seven analysts predicted the rate would remain unchanged.

Central bankers in Warsaw accelerated rate increases to prevent rising food and fuel prices from boosting inflation. The 10-member rate panel will wait with the next move to see if the 100 basis points of tightening this year will stem inflationary pressures that may fuel wage demands.

"We plan to wait before making any more policy moves," Governor Marek Belka said at a press conference in Warsaw following the decision. "After four rate increases, it seems the time has come to see what effect they have on the Polish economy."

The zloty fell 0.3 percent to 3.9498 per euro at 4:46 p.m. Bonds rallied after Belka’s comment, pushing the yield on the notes maturing in April 2016 down 8 basis points to 5.42 percent, the lowest since November 23.

Matching Inflation

The Polish benchmark, which compares with the European Central Bank’s 1.25 percent rate, now matches the latest consumer-price index. Inflation accelerated to 4.5 percent in April from 4.3 percent in March, exceeding the central bank’s 2.5 percent target for a seventh month.

The central bank’s "significant" rate increases this year should be sufficient to bring inflation back to the target in the medium term, the council said in a statement. Rates may rise again if the inflation outlook deteriorates, it said.

"If we don’t see high wage growth, the probability of further significant increases in interest rates will diminish or vanish," Stanislaw Gomulka, chief economist of employers’ group the Business Centre Club, said in an e-mailed note.

The pace of rate increases was justified by the acceleration in core inflation, said Anna Zielinska-Glebocka, a member of the Monetary Policy Council. Core inflation, which strips out volatile fuel and food prices, quickened to 2.1 percent in April, the highest rate since February 2010.

Higher Forecasts

Companies and households raised 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.

The economy expanded 4.4 percent from a year earlier in the first quarter, close to the fastest pace since 2008, as private consumption exceeded analysts’ expectations and investment recovered. Corporate wages increased 5.9 percent from a year earlier in April, the most since December 2009, and retail sales rose 18.6 percent, the most since the start of 2008.

Policy makers in Poland, the biggest economy among the European Union’s eastern members, raised rates for the first time in 2 1/2 years in January.

Hungary was the first of the EU’s eastern members to begin raising interest rates. The central bank increased its benchmark rate in November, December and January by a total of 0.75 percentage-point to 6 percent. Inflation accelerated to 4.7 percent in April, the fastest in 10 months.

Czech policy makers have kept their main rate unchanged at 0.75 percent for the past year. The country’s inflation rate fell to 1.6 percent in April, the lowest in 10 months.

--With assistance from Piotr Skolimowski, Monika Rozlal and Barbara Sladkowska in Warsaw. Editors: Balazs Penz, Eddie Buckle

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

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

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