Bloomberg News

Poland Leaves Rates Unchanged as Zloty Drop Spurs Inflation

January 12, 2012

(Updates with central bank governor’s comments from fourth paragraph, zloty, bonds in fifth.)

Jan. 11 (Bloomberg) -- Polish policy makers left borrowing costs unchanged for a sixth meeting today and said the probability of interest-rate cuts has declined as the weaker zloty fuels inflation pressure.

The Narodowy Bank Polski kept the benchmark seven-day interest rate at 4.5 percent, matching the forecast of all 30 economists in a Bloomberg survey.

Eastern European policy makers face resurgent price growth due to weakening currencies and a worsening economic outlook as their biggest export market, the euro region, nears a recession under the weight of its debt burden and government austerity plans. A depreciation of the Polish currency has boosted the price of imports and lifted inflation to a six-month high of 4.8 percent, almost double the central bank’s 2.5 percent target.

“The likelihood of rate cuts is diminishing,” central bank Governor Marek Belka told reporters at a news briefing after today’s decision. He cited “a stubbornly high inflation rate” spurred by the zloty’s declines in recent months, along with evidence suggesting “this year’s economic slowdown may be on a smaller scale than previously expected.”

The zloty, whose 11.7 percent drop since July made it the second-worst performer among currencies tracked by Bloomberg, was little changed at 4.4626 per euro at 6:15 p.m. in Warsaw, less than 0.1 percent weaker on the day. The yield on the government’s 10-year bond fell to 5.794 percent from 5.798 percent late yesterday.

‘More Hawkish’

“Today, the central bank sounded quite a bit more hawkish at its policy meeting, which works well with our view of paying local rates from a tactical perspective” said Benoit Anne, head of emerging-markets strategy at Societe General SA in London, in an e-mail. “We do not foresee any rate cut at all this year.”

The French bank is advising clients to pay two-year interest-rate swaps, which investors use to lock in borrowing costs in the future, in anticipation they will rise. The two- year swap traded at 4.825 percent today, increased from 4.795 percent yesterday.

The Monetary Policy Council raised borrowing costs by 1 percentage point last year to tame inflation and has reaffirmed plans to keep rates unchanged after price growth accelerated. Since the previous increase in June, the zloty weakened 11 percent against the euro as investors shun emerging markets, pushing up import costs. Economic growth is forecast to slow to 3.1 percent this year from an estimated 4 percent in 2011.

Core Inflation

Core inflation, which strips out volatile food and fuel prices, accelerated to 3 percent from a year ago in November, the fastest pace since April 2002.

“Hope is waning that the inflation rate will fall quickly this year, while the zloty remains far from stable,” Ernest Pytlarczyk, head of financial markets research at BRE Bank in Warsaw, said by phone after the decision. “Policy makers will start to ease rates in a few months, when they see economic growth begin to stall and fiscal policy staying on track.”

Inflation concerns kept the Czech central bank from lowering its two-week repurchase rate from 0.75 percent on Dec. 21, while Hungary raised its main rate to a two-year high of 8 percent on Dec. 20 and said it may tighten policy further to boost the forint. The European Central Bank cut its main rate to 1 percent on Dec. 14 to add fuel to the region’s economy.

The central bank doesn’t want to use monetary policy tools such as interest rates to influence the zloty, Belka told reporters today.

‘External Factors’

“I doubt whether an interest-rate increase would strengthen the zloty, because currency more dependent on external factors,” he said.

Poland’s central bank in November cut its economic-growth forecast for 2012 to 3.1 percent from 3.2 percent. Gross domestic product grew 4.3 percent from a year earlier in the third quarter, topping economists’ forecasts and bolstering projections for a full-year expansion of the $469 billion economy to 4 percent or more, Prime Minister Donald Tusk said Dec. 2.

While 23 economists polled by Bloomberg expect the Monetary Policy Council to lower interest rates in the third quarter, some central bankers, including Adam Glapinski, Anna Zielinska- Glebocka and Jerzy Hausner, said last month that monetary tightening is more probable than rate cuts.

--With assistance from Barbara Sladkowska and Monika Rozlal in Warsaw. Editors: Alan Crosby, David McQuaid, Balazs Penz

Piotr Skolimowski in Warsaw at

To contact the reporters on this story: Pawel Kozlowski in Warsaw at

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

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