Bloomberg News

Polish Central Bank Keeps Interest Rates Unchanged on Zloty

October 05, 2011

(Updates with comments from governor in fourth paragraph, economist in fifth, markets in eighth.)

Oct. 5 (Bloomberg) -- Poland’s central bank left borrowing costs unchanged for a third meeting as a weaker zloty and inflation concerns keep it from easing policy to protect the economy against a global slowdown.

The Narodowy Bank Polski kept the seven-day interest rate at 4.5 percent, matching the forecasts of all 30 economists surveyed by Bloomberg.

Investors on the derivatives market bet two months ago on an interest-rate cut amid a worsening economic outlook as the euro-area’s slowing economy hurts demand for Polish exports. An 11.2 percent slump in the zloty against the euro and a 20 percent fall to the dollar in the third quarter prompted the central bank to support the currency and erased expectations that borrowing costs will drop.

The central bank reiterated in its post-decision statement that it may make “further monetary policy adjustments” if the prospects for a drop in the inflation rate worsen. Governor Marek Belka told reporters at a press conference that the statement “could be interpreted” as meaning the bank was more likely to raise interest rates than cut them.

‘More Hawkish’

“The Polish central bank is trying to sound a bit more hawkish than we had expected,” said Anders Svendsen, an analyst at Nordea Bank AB in Copenhagen, in a note to clients after Belka’s comments. “The bank chooses to say that they keep a wait and see stance with a tendency for higher rates, but the fact is that there is nothing hawkish in the statement and no one believes the central bank will actually hike unless the foreign-exchange interventions do not work. This should probably be seen more as verbal support for the zloty.”

The Polish currency slumped around 10 percent against the euro in the third quarter, making it the worst-performing among emerging-market currencies tracked by Bloomberg. Nine-month forward-rate agreements used to bet on borrowing costs in the future show investors are pricing in a cut of about 25 basis points by July.

“The situation is too uncertain for the central bank to cut rates,” said Maja Goettig, chief economist at Bank BPH. “And, in addition to the general market turbulence, inflation is at such a high level that a rate cut would risk zloty depreciation.”

Zloty, Yields

Poland’s central bank moved to strengthen the zloty for the first time in at least a decade on Sept. 23 and stepped into the market again a week later. The currency sales came after Governor Marek Belka warned last month the zloty was not in line with Poland’s “healthy fundamentals.”

The zloty strengthened against the euro today to 4.3830 from 4.4073 at yesterday’s close. The yield on the five-year bond dropped to 5.212 percent from 5.296 percent yesterday.

Economic growth in the euro area, which buys 55 percent of Polish exports, slowed to 0.2 percent in the April-June period from the previous quarter, the worst performance since the bloc’s 2009 recession. The International Monetary Fund slashed its forecast for Poland’s 2011 economic growth to 3.8 percent from 4 percent in a May report.

Inflation accelerated in August to 4.3 percent from 4.1 in July, remaining above the central bank’s 2.5 percent target for a year.

“The market has stopped betting on a fast rate cut, particularly after the recent depreciation of the zloty, which makes the central bank’s job tougher,” Krzysztof Izdebski, a fixed-income portfolio manager at Union Investment TFI SA in Warsaw, said by phone before decision. “Interest rates will remain unchanged to the end of this year but the Monetary Policy Council is likely to lower them as soon as inflation and the zloty allow.”

--With assistance from Piotr Skolimowski and Barbara Sladkowska in Warsaw. Editors: Alan Crosby, Andrew Langley

To contact the reporters on this story: Monika Rozlal in Warsaw at Katya Andrusz at

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

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