Bloomberg News

BoA-ML Sees Main Polish Rate Rising a Half-Point Through May

January 24, 2012

Jan. 24 (Bloomberg) -- Poland’s central bank will increase its benchmark interest rate in quarter-point steps in March and May as economic growth and a weak zloty keep inflation above the 2.5 percent target, Bank of America Merrill Lynch said.

“As the economy is proving resilient, the Monetary Policy Council is turning its attention to inflation,” Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London, said in a report published today.

The Narodowy Bank Polski left the benchmark seven-day interest rate at 4.5 percent for a seventh month on Jan. 11, citing “a stubbornly high inflation rate” spurred by the zloty’s declines in recent months, together with data suggesting an economic slowdown may be less than forecast.

Poland’s economy grew about 4 percent in the fourth quarter of last year and as much as 4.2 percent in 2011, Deputy Finance Minister Ludwik Kotecki said yesterday, adding that the “balance of risks” for forecasted 2.5 percent growth of gross domestic product in 2012 is “positive,” PAP reported. December industrial output grew 7.7 percent from the same month in 2010, exceeding forecasts.

“Headline inflation in our view has peaked, but will not return to the 2.5 percent center of the target corridor even in 2013,” Tenconi wrote in today’s report. “Inflation expectations of households and businesses are stuck at high levels, raising the risk of eventual second-round effects.”

Risks to the two interest rate increases could come from “a sudden negative growth shock to the German economy,” where Poland sells a third of its exports, she said.

The rate decisions also hinge on the zloty, which slumped 10.5 percent against the euro over the past 12 months, leading to faster price growth, Tenconi said.

While the zloty has gained since the beginning of this year, “an appreciation of the zloty to 4 against the euro is what is needed to bring inflation back to target already this year,” she said.

--Editors: Alan Crosby, Douglas Lytle

To contact the reporter on this story: Dorota Bartyzel in Warsaw at Katya Andrusz in Warsaw at

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

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