Bloomberg News

Polish Rates May Be Held for ‘Extended Period,’ Zielinska Says

October 21, 2011

Oct. 21 (Bloomberg) -- The Polish central bank may keep interest rates unchanged “for an extended period” of at least through March as they are adequate amid slowing economic growth and fast inflation, said policy maker Anna Zielinska-Glebocka.

The rate-setting Monetary Policy Council left the benchmark seven-day interest rate unchanged for a third meeting at 4.5 percent on Oct. 6 because it’s “an appropriate level” under present economic conditions, she said in an Oct. 19 interview in Warsaw. “It would be safe to say” rates will be kept unchanged through the first quarter of next year, she added.

“There’s no need to make changes in the next few months or even quarters,” she said. “If nothing extraordinary is happening in the economy, rates should be held steady for an extended period, which would be in keeping with our monetary policy guidelines.”

Central banks across the region have been weighing faltering growth prospects with weaker currencies. Hungary kept its benchmark interest rate steady for an eighth month on Sept. 20, while the Czech central bank followed suit two days later.

Investors on the derivatives market bet two months ago on an interest-rate cut as the euro-area’s slowing economy hurts demand for Polish exports, damping growth. An 11.2 percent slump in the zloty against the euro and a 20 percent decline to the dollar in the third quarter prompted the Narodowy Bank Polski to support the currency and erased expectations that borrowing costs will drop.

‘Wait and See’

Nine-month forward rate agreements are now trading 28 basis points below the three-month Warsaw Interbank Offered Rate, indicating bets on a rate cut by July.

With wages rising faster than inflation and price growth near 4 percent, a rate cut can be ruled out, said Zielinska- Glebocka, who doesn’t expect a “deep” economic slowdown and forecasts the Polish economy will expand by no less than 3 percent next year.

“Slower growth, combined with the effects of previous rate increases, should allow us to stick to a “wait-and-see” approach for some portion of next year, so long as nothing bad happens to the currency or on the financial markets,” she said. “I don’t see room for a rate cut in any of the more plausible scenarios.”

Inflation was 3.9 percent in September, staying above the central bank’s 2.5 percent target for more than a year even after four rate increases this year by the central bank totaling 1 percentage point.

Policy makers may support a rate increase if “anything happens on international markets or with the zloty exchange rate that would require policy tightening.”

Buying Zloty

The central bank sold foreign currency on Sept. 23 to strengthen the zloty, first time since the exchange rate was allowed to move freely in April 2000, after the zloty slumped to 27-month low. It stepped into the market two more times in the three following weeks. The Polish currency lost about 10 percent against the euro in the third quarter.

The zloty closed at 4.4099 per euro yesterday, having weakened 1.6 percent from the previous day.

“The main risk is still the exchange rate, even though it’s been more stable lately,” she said. “In the near future, politics may also play an important role because some investors are waiting for the prime minister’s policy speech outlining the new government’s financial strategy, which could provoke a reaction from the ratings agencies.”

Prime Minister Donald Tusk won an unprecedented second term in elections this month on pledges to cut the budget gap to bolster the zloty as investors shy away from the European Union’s biggest eastern country.

Zielinska’s comments follow similar statements from other rate setters. Zyta Gilowska said on Oct. 11 a rate cut would “premature” as inflation remains fast and the zloty is set to weaken, while Andrzej Bratkowski said a week later rate increases are more likely than cuts as the economic slowdown will be only “shallow and short.”

--Editors: Alan Crosby, Balazs Penz

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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