Bloomberg News

Poland May Hold Rates at Highest Since 2009 on Zloty Decline

December 07, 2011

(Updates zloty, bonds in fifth paragraph, comment in 10th.)

Dec. 7 (Bloomberg) -- Poland’s central bank will probably leave its main interest rate unchanged at the highest in almost three years on concern a fall in the zloty will fuel inflation even as the euro area’s debt crisis threatens economic growth.

The Narodowy Bank Polski will leave the benchmark seven-day interest rate at 4.5 percent for a fifth month, the highest since January 2009, according to all 32 economists in a Bloomberg survey. The decision is due today after noon in Warsaw following a two-day meeting.

Policy makers raised borrowing costs by a total of 1 percentage point this year to tame inflation and have reaffirmed plans to hold rates flat after price growth accelerated. Since the last increase in June, the zloty has shed 12.5 percent against the euro as investors shun emerging-market assets, pushing up import costs and helping keep inflation above the central bank’s 2.5 percent target for a 13th month.

“Inflation remains at an elevated level, the zloty is exposed to depreciation because of external turbulence and the real economy is still in good shape -- all of which gives policy makers enough space for a wait-and-see attitude,” Mateusz Szczurek, chief economist for central and eastern Europe at Warsaw-based unit of ING Groep NV, said yesterday in a note.

The zloty, the sixth-worst performer since July among currencies tracked by Bloomberg, traded at 4.4633 per euro at 10 a.m. in Warsaw, up from 4.47 late yesterday. The yield on the government’s 10-year bond fell 0.2 percentage point to 5.86 percent.

‘Zloty Complication’

Consumer prices rose 4.3 percent from a year earlier in October after a 3.9 percent increase in September, prompting policy makers, including Elzbieta Chojna-Duch and Anna Zielinska-Glebocka, to reiterate plans to leave rates unchanged. Central bank Governor Marek Belka said Nov. 30 that “the volatile zloty complicates the bank’s fight with inflation.”

The bank has cut its 2012 economic-growth forecast to 3.1 percent from 3.2 percent. Gross domestic product grew 4.3 percent from a year earlier in the third quarter, better than economists forecast, bolstering projections for full-year expansion of 4 percent or more, Prime Minister Donald Tusk said Dec. 2.

Growth next year may depend on progress in solving the debt crisis in the euro region, which “is already in a mild recession,” according to a report last week by the Paris-based Organization for Economic Cooperation and Development. Poland’s economy, the only one in EU to dodge recession in 2009, may slow to 2.5 percent in 2012, the government estimates.

‘Stubbornly High’

While the median estimate of 29 economists in a Bloomberg survey indicates a quarter-point rate cut by March, some predict an increase, should the euro region’s crisis lead to further zloty depreciation and inflation.

“Right now we have a problem with inflation and only if it slows near the upper end of the inflation target range can we start thinking about the real economy,” council member Andrzej Kazmierczak told journalists in Warsaw on Dec. 5. “Despite four rate increases, we see increasing borrowing by companies. This means that the rates channel isn’t fully efficient.”

Corporate loans grew 13.4 percent in October from a year earlier, accelerating from a 13 percent increase the previous month, according to central bank data.

Upward pressure on manufacturers’ input prices “remained stubbornly high” in November even as demand weakened, HSBC Holdings said Dec. 1. The producer price index, an early indication of inflationary trends, rose four consecutive months to 8.5 percent in October.

While the central bank has sold euros to prop up the zloty, it may have to do more to stem the decline, Ernest Pytlarczyk, chief economist at BRE bank in Warsaw, said in a note on Dec. 2.

“A rate hike could be a viable alternative,” he said.

Hungary raised borrowing costs by 50 basis points to 6.5 percent on Nov. 29 to stem declines in the forint after the country’s credit rating was downgraded to junk status by Moody’s Investors Service.

“More pressure on the zloty and problems with external financing could prompt emergency hikes,” Magdalena Polan, an economist at Goldman Sachs Group Inc. in London, wrote on Nov. 30 in a note to clients.

--With assistance from Barbara Sladkowska in Warsaw. Editors: Andrew Langley, Balazs Penz

To contact the reporters on this story: Dorota Bartyzel in Warsaw

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

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