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Poland May Leave Rates Unchanged This Year, Bratkowski Says

June 16, 2011

(Updates with comments on currency and the chance of a rate cut starting in 12th paragraph.)

June 16 (Bloomberg) -- Poland’s central bank may leave interest rates unchanged this year as it waits for 100 basis points of increases since January to curb the fastest inflation in a decade, central banker Andrzej Bratkowski said.

Inflation, which surged to 5 percent in May, will slow as economic growth in the second half may be less than 4 percent and household income, squeezed by high energy and fuel prices, will restrain consumption, Bratkowski said in an interview in Warsaw yesterday.

The Narodowy Bank Polski last week raised its benchmark interest rate to 4.5 percent, the fourth increase this year, and signaled it will pause before further increases. Central bankers need more time to assess the effects of this year’s monetary tightening as they seek to slow consumer-price growth to their 2.5 percent target.

“We have got room to wait for the effects of four rate hikes and I don’t expect anything that could force me to vote for a fifth one before the end of this year,” Bratkowski said. “If we keep on raising rates as long as inflation exceeds the target, we would overshoot. A maximum of four quarters should be enough to see the inflation rate returning to a decent level.”

Policy makers around the world are battling to contain inflation spurred by rising food, commodity and energy costs. Central banks in Norway, Russia and Denmark, along with the European Central Bank, have increased borrowing costs in the past two months in response to price pressures.

Rate Bets

Investors boosted bets on a Polish interest-rate increase in July after the May inflation report was released yesterday. One-month forward-rate agreements were trading 30 basis points above three-month Warsaw Interbank Offered Rate, up 2 basis points from a day earlier.

The six-month FRA are trading 38 basis points above the Wibor, compared with 30 basis points a day earlier, indicating investors in the derivative market expect borrowing costs to rise no more than a quarter-point this year.

Inflation may not slow in the next two or three months, according to Bratkowski, who pledged to focus on other indicators such as wage growth and industrial output when making rate decisions.

“The May inflation rate was high, but not decisive,” he said. “This index won’t matter to me in the next two or three month as I expect it won’t start falling earlier. Much more important will be the data on economic activity. Some strong trends would have to emerge to make me vote for tightening.”

‘Won’t Panic’

Policy makers “won’t panic” because of the May inflation figure, Governor Marek Belka said yesterday. Elzbieta Chojna- Duch, another member of the rate-setting panel, said she sees no room for rate increases at the moment as higher borrowing costs may hurt investments and the inflation rate will probably begin declining in July.

Bratkowski voted for rate increases three times this year, including a failed motion in March, according to central bank voting records.

“Chances are that the inflation trend will reverse within the next two or three quarters and it won’t be a tragedy if the annual rate doesn’t fall below 4 percent at the end of the year,” Bratkowski said. “If I see that this process doesn’t start within these two-to-three quarters, then I will support resuming rate hikes as that would mean slower economic growth isn’t enough to curb inflation within the next two years.”

Currency Impact

Gains by the zloty will help tame inflation, Bratkowski said. The currency has strengthened 3.6 percent against the euro in the past three months, the fifth-best performance among 31 major currencies tracked by Bloomberg.

"A fast rate-hike series could have discouraged investors from the zloty, so we can see the impact of tightening on the currency only now as there is some potential for strengthening," he said.

The zloty strengthening beyond 3.6 per euro within a short period of time and economic growth slowing to less than 3 percent, wold make it possible to lower borrowing costs.

"This could be an argument for considering a rate cut," he said. "The probability of another hike is dramatically lower than leaving the rates unchanged and only slightly higher than a cut."

The zloty traded at 3.9531 against the euro at 8:43 a.m. in Warsaw from 3.9457 yesterday.

--Editors: Balazs Penz, Alan Crosby

To contact the reporter on this story: Monika Rozlal in Warsaw at

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

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