Bloomberg News

Poland’s Central Bank Must Raise Rates, Kazmierczak Says

June 20, 2011

(Updates zloty, bonds, FRAs from sixth paragraph. For more from Kazmierczak, click HERE.)

June 20 (Bloomberg) -- Poland’s central bank must add to its 100 basis points of interest-rate increases this year after inflation unexpectedly accelerated to the fastest in a decade, central banker Andrzej Kazmierczak said.

While inflation probably peaked in May, prices will decline more slowly than previously expected, with the rate remaining above 3.5 percent through the end of the year, Kazmierczak said in a June 17 interview in Warsaw.

The Narodowy Bank Polski raised its benchmark seven-day rate by a quarter-point to 4.5 percent on June 8, the fourth increase this year. Inflation accelerated to 5 percent in May, double the central bank’s target and the highest since August 2001, exceeding all forecasts of economists

“Small and gradual rate increases have so far failed to bring the desired effects as they neither slowed inflation, nor calmed inflation expectations,” Kazmierczak said. “I’m determined to continue monetary-policy tightening, and the May inflation data only strengthened my determination to do so.”

The zloty has weakened 0.73 percent against the euro this month, the fourth-worst performance among more than 20 emerging- market currencies tracked by Bloomberg, behind the Romanian leu, the Mexican peso and the Chilean peso.

Poland’s currency traded at 3.992 per euro at 1:20 p.m. in Warsaw, down from 3.98 late on June 17. Bonds fell pushing yields on five-year notes 10 basis points higher to 5.48 percent in the last five trading days.

FRAs Rise

Polish six-month forward rate agreements have climbed in the past week after falling to 30 basis points above the three- month Warsaw Interbank Offered Rate, the lowest level since July. The spread rose to 37 basis points as of 12:53 p.m. in Warsaw today.

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.

Polish policy makers signaled a pause in rate increases this month and central bank Governor Marek Belka on June 15 said rate setters “won’t panic” because of the May inflation report.

Growth Concerns

Monetary Policy Council members Andrzej Bratkowski and Elzbieta Chojna-Duch also argued against higher borrowing costs, partly because of concern tighter monetary policy would hurt economic growth. Gross domestic product will probably expand less than 4 percent next year, Kazmierczak said.

“The Monetary Policy Council may need to continue a restrictive policy during 2012, which may limit economic growth,” Kazmierczak said. “Elevated inflation causes a threat to persistent and strong economic growth, which is impossible without a strong currency, thus low inflation.”

Changing the central bank’s bias to neutral from restrictive, as suggested by policy makers including Jerzy Hausner, would be “premature,” Kazmierczak said. Following recent inflation data, “the change to a neutral bias from the restrictive one has been postponed” even if further rate increases would limit economic growth, he said.

--With additional reporting by Piotr Skolimowski in Warsaw. Editors: Balazs Penz, Willy Morris

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net;

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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