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Belka Sees No Rush to Raise Rates in Poland as Growth Slows

March 27, 2012

Polish central bank Governor Marek Belka signaled he’s prepared to wait before raising interest rates to avoid the risk of having to reverse the move should the economy slow.

“I would rather not risk our reputation,” Belka said in an interview in Warsaw yesterday. “Being too late is probably a lesser mistake than increasing interest rates and then having to reverse the move. This is the kind of calculation that I have in mind when I look at interest rates.”

Investors are watching the Polish central bank for the time of a rate increase. While Belka said the Monetary Policy Council’s 10 members are becoming more “impatient” with inflation above their target, he also said borrowing costs are “quite restrictive.”

The Narodowy Bank Polski left its benchmark interest rate at 4.5 percent for a ninth month on March 7 as inflation remained above the 3.5 percent upper end of the central bank’s tolerance range since January 2011.

“The message from Belka is that he is happy to stay pat just a while yet,” Tim Ash, head of emerging markets research at Royal Bank of Scotland Group Plc in London, wrote in e-mailed comments today. “Belka is the key swing voter and should be listened to.”

Zloty Retreats

The zloty retreated after Belka’s comments to 4.1483 per euro at 5 p.m. in Warsaw, down 0.6 percent on the day. That’s the steepest decline among more than 20 emerging-market currencies tracked by Bloomberg.

The Polish currency has gained 7.7 percent against the euro this year, the world’s second-best performance behind the Hungarian forint. Traders cut their outlook for interest rates this year to the lowest in a month on March 20, three days after Belka said the central bank was becoming “a bit more hawkish.”

“We’re quite patient, by Polish standards, but inflation cannot stay at over 4 percent forever,” said Belka, 60, a former prime minister and finance minister. “If inflation remains high for too long, it may become embedded in inflationary expectations.”

Consumer-price growth accelerated to 4.3 percent in February from 4.1 percent the previous month. Households expect the rate to reach 5 percent in one year, a central bank survey showed last month.

‘Perhaps Loose’

Poland’s benchmark rates are “perhaps loose” by the country’s historical standards, “but quite restrictive if you compare them with the euro zone, with the Czech Republic or even Denmark,” Belka said.

“The interest-rate differential is quite high between Poland and the rest of the European economies, and we probably shouldn’t go much further,” Belka said, reiterating that rate increases are more likely than cuts.

In the 10-member Monetary Policy Council, “clearly the mood is more inclined to tightening monetary policy rather than loosening it,” Belka said. April would be the “right moment” to increase Polish rates, Adam Glapinski, a member of the rate panel, told the PAP news service in an interview yesterday.

Poland’s high inflation rate is “temporary” and recent data, including a slowdown in industrial output to a seven-month low of 4.6 percent in February, have changed the outlook for the coming months, Belka told Dziennik Gazeta Prawna in an interview published today.

‘Cooling Down’

“Governor Belka is cooling down some of the more ardent hawks,” ING economists Mateusz Szczurek, Rafal Benecki, and Grzegorz Ogonek wrote today in an e-mailed note. “We’d assumed he’d try to persuade colleagues calling for rate increases to hold off in April.”

ING is recommending clients sell two-year zloty interest rate swaps, which fell to 4.84 percent at 4:08 p.m. in Warsaw, down 2 basis points from their level before Belka’s comments appeared at 2:19 p.m.

“In times of instability and all kinds of turbulence, you have to try to minimize mistakes,” Belka said. “If you increase interest rates and then the economy weakens dramatically, then you’d probably be in a position where you’d be forced to reverse” it. “Even the European Central Bank committed this kind of mistake twice, in 2008 and again quite recently. With the reputation the ECB has, they can afford it.”

GDP Growth

Belka didn’t say how long the central bank should wait to increase rates. It would be a mistake for policy makers not to increase borrowing costs if the economy “were to grow more and more strongly, particularly if the technical recession in Germany ends, and inflation remains over 4 percent,” he said.

Gross domestic product grew 4.3 percent last year and will expand 2.5 percent in 2012, the fastest among the 27 European Union members, the European Commission forecast on Feb. 23. The country of 38.5 million is slowing as the euro area contracts because of austerity measures aimed at curbing debt.

While Poland sells 54 percent of its exports to euro states, its companies are price-competitive, which makes them less vulnerable, Belka said, adding that even a “moderate” slowdown “certainly takes some of the inflationary heat off the economy.” Germany’s Ifo business climate index rose to 109.8 in March, beating the median forecast of 109.6 in a Bloomberg news survey.

“I’m not concerned too much about an economic slowdown” being “as deep as some fear,” Belka said, noting that the central bank’s own GDP growth forecast for this year is 3 percent. “The slowdown in Germany doesn’t really hurt our economy too much. Analysts underestimated the dynamics of the Polish economy. It hinges on cost effectiveness, that’s what it comes down to.”

To contact the reporters on this story: David McQuaid in Warsaw at; Matt Winkler in New York at

To contact the editor responsible for this story: Hellmuth Tromm at

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