Bloomberg News

Polish Inflation Slows to 4.6%, Interest Rates Seen on Hold

January 16, 2012

(Updates with economist’s comment in fourth paragraph, zloty, forward-rate agreements in seventh.)

Jan. 13 (Bloomberg) -- Polish inflation slowed from the highest rate in six months in December as clothing-price declines offset higher energy and food costs, which may prevent the central bank from cutting interest rates this year.

The inflation rate fell to 4.6 percent from a year earlier after a 4.8 percent increase in November, the Central Statistics Office in Warsaw said today. The median estimate of 30 economists in a Bloomberg survey was 4.7 percent. Prices rose 0.4 percent from the previous month, with inflation over the whole of 2011 reaching an average of 4.3 percent.

The Narodowy Bank Polski, which left its benchmark seven- day rate at 4.5 percent unchanged for a sixth meeting on Jan. 11, said the probability of interest-rate cuts has declined as a weaker zloty fuels inflation. Price growth has remained above the central bank’s 2.5 percent target for 15 months.

“Expectations for price increases were high, not just with analysts but among companies and households, and you can see that confirmed in the data,” said Grzegorz Ogonek, an economist at ING Bank Slaski SA in Warsaw. “Price growth remains too high to expect any return to the central bank’s target this year.”

Eastern European policy makers face resurgent inflation because of weakening currencies and a worsening economic outlook for the euro area, their biggest export market, which is grappling with a debt crisis and government austerity. The region buys 54 percent of Polish exports.

Zloty, Forwards

The zloty has dropped 9.8 percent since July, making it the second-worst performer after the Hungarian forint among emerging-market currencies tracked by Bloomberg. The declines have boosted import prices.

The Polish currency strengthened to 4.4011 per euro at 2:46 p.m. from 4.4039 before the release, leaving it virtually unchanged on the day. Polish nine-month forward rate agreements declined 3 basis points to 4.6817 percent as of 2:46 p.m. in Warsaw. The contract that investors use to bet on changes in interest rates are trading 30 basis points below the three-month Warsaw Interbank Offered Rate to which they settle.

ING Bank Slaski has scaled back its forecast for interest- rate cuts this year to one quarter-point reduction in the fourth quarter, rather than the previous prediction of two cuts, with the first coming no later than June, Ogonek said.

“You can see the central bank is trying to cool expectations for policy easing,” he said. “They’re very much in a wait-and-see mode, especially since economic growth is holding up well.”

--Editors: David McQuaid, Jeffrey Donovan

Marta Waldoch in Warsaw at

To contact the reporters on this story: Milda Seputyte in Vilnius at

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

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