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Polish Interest Rate Cut Becoming More Likely on Slowing GDP, Chojna Says

March 12, 2012

The likelihood that Poland’s central bank will cut interest rates is increasing as the economy is set to grow next year at the slowest pace since 2009, monetary-policy maker Elzbieta Chojna-Duch said.

The Monetary Policy Council’s “wait-and-see” approach will last for “some time” as the zloty needs to regain its strength against the euro and the government must push on with deficit cuts to create conditions for lower borrowing costs, Chojna-Duch said in an interview on March 10.

The Narodowy Bank Polski on March 7 left the seven-day interest rate at 4.5 percent, the highest since January 2009. The central bank at the same time predicted slowing economic growth, raising its forecast for inflation this year and lowering it for 2013. Rate increases are more likely than cuts, central bank Governor Marek Belka said after the decision, reiterating the previous position of policy makers.

“High inflation at a time of the euro region’s credit crisis harming prospects for our economy justifies leaving rates unchanged now,” Chojna-Duch said. “The risks have been shifting next year and the year after next, opening conditions for lower rates.”

The zloty has gained 8.5 percent against the euro this year, making it the world’s second-best performing currency after the Colombian peso. It traded at 4.1169 per euro at 3:35 p.m. in Warsaw from 4.0893 on March 9. The yield on the country’s benchmark five-year bond declined 28 basis points in the same period to 4.769 percent.

‘Somewhat Faster’

Poland’s inflation may return to the central bank’s target range of between 1.5 percent and 3.5 percent “somewhat faster” than shown in recent projections because of the impact of data since Jan. 24, the Narodowy Bank Polski said in a report today.

The inflation rate may drop to near the target as early as the third quarter of this year, Andrzej Bratkowski, a member of the rate-setting panel, said at a conference in Warsaw today. If the euro area’s economy has growth of close to zero this year, Polish output may expand by between 3.5 percent and 4 percent, he said.

The data on price growth and the zloty’s appreciation in February may lower the projected inflation rate in 2012 by between 0.3 percentage point and 0.4 percentage point and next year between 0.2 percentage point and 0.3 percent percentage point, the bank said.

Data released after the cut-off date for the report show that economic growth may be faster than projected “in the short term,” while the impact of the stronger zloty will have “a growing negative impact” on the economy in the coming quarters, according to the report.

‘Harm the Economy’

Analysts at banks including Citigroup Inc. (C) said the outlook facilitates rate cuts later this year, while Bank PKO BP said borrowing costs will probably stay unchanged with a 30 percent probability of an increase.

“The inflation projection in itself doesn’t presage an increase in interest rates,” Chojna-Duch said. “If we raise the rate now, it will harm the economy exactly at a time when, according to the outlook, it is going to suffer the worst slowdown since 2009.”

Poland’s economy, the only one in the European Union to dodge a recession in 2009, expanded 4.3 percent in the fourth quarter as exports and investments grew while public consumption declined. The European Commission estimates gross domestic product will rise 2.5 percent this year, the fastest in the 27- nation bloc.

Unemployment Rises

That matches the official estimate by the government, which says spending cuts and rising unemployment, along with a euro- region recession, will damp growth this year. The jobless rate rose to 13.5 percent last month from 13.2 percent in January, the highest since April 2007, the Labor Ministry said this week.

The central bank raised borrowing costs four times in the first half of 2011 to tame inflation, which has remained above the 3.5 percent upper end of its target range since January 2011. Rising unemployment and signs of slowing consumer demand, indicate no local inflationary pressure, Chojna-Duch said.

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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