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Polish Rate Move Hinges on This Week’s Data, Zielinska Says

April 16, 2012

Polish economic data due this week will help monetary policy makers decide whether to raise interest rates in May or to leave them unchanged for an 11th month, central banker Anna Zielinska-Glebocka said.

While production, wages and jobs data due this week “should be enough” to make a preliminary judgment on the pace and structure of economic growth, a decision “won’t be easy” as supply-driven inflation may be resistant to higher borrowing costs and last year’s rate increases haven’t yet taken full effect, she said.

“When it comes to the decision on when to tighten monetary policy, a lot depends on the next week,” Zielinska-Glebocka said in an interview on April 14.

The central bank on April 4 warned that it will raise interest rates if slowing economic growth fails to curb inflation, which has exceeded the 3.5 percent upper end of its tolerance range since January 2011. Policy makers the same day left the benchmark seven-day interest rate at 4.5 percent, the highest since January 2009.

The bank is “approaching the stage to seriously consider” raising borrowing costs, Narodowy Bank Polski Governor Marek Belka said after the decision. Belka as recently as last month said he would rather wait with an increase than have to reverse a decision if the economy slows.

‘Not Comfortable’

The situation is “not comfortable,” central banker Andrzej Bratkowski was quoted as saying by Dziennik Gazeta Prawna today. The inflation rate is “still high, but it’s being driven by food and fuel. All the other indicators are telling us to consider the risk of a slowdown. So we wait for more data,” he said, according to the Warsaw-based newspaper.

The zloty traded at 4.194 at 4 p.m. in Warsaw, up from as low as 4.206 earlier the day and down from 4.187 late Friday. The yield on the government’s five-year bond was little changed at 5.06 percent.

The inflation rate dropped to a six-month low of 3.9 percent in March. The decline was due to high prices a year earlier and won’t influence next month’s rate decision, Zielinska said. The most important data for the council will be production and labor-market figures, she said.

Risks are rising that Poland’s inflation rate will stay above the central bank’s 2.5 percent target, creating a “worst- case scenario” that policy makers should act to prevent, Andrzej Rzonca of the Monetary Policy Council was quoted today as saying by the state-owned PAP news service.

‘Worst-Case Scenario’

“In times of uncertainty, policy makers should concentrate on avoiding worst-case scenarios,” he said, according to PAP. “For me, the worst-case scenario is sustained high inflation.”

Interest rates are “a bit too low,” taking into account the level of inflation and “how stubborn it is,” Jan Winiecki, another central banker, said in an interview on TOK FM radio today. Winiecki also said he “can’t rule out more than one interest-rate increase may be needed over the longer term.”

Slowing inflation is proof of consumer prices following expectations, indicating that the rate should move toward the upper end of the tolerance range throughout the year, Elzbieta Chojna-Duch, a central bank policy maker, said in an April 13 phone interview. Production and labor-market data “will be the key” to the next rate decision, she said.

Industry, Wages

Industrial-production (POISCYOY) growth probably slowed for a second month in March to 4.4 percent from a year earlier, the slowest pace since last July, according to the median estimate of 28 economists surveyed by Bloomberg News. The statistics office will report the data April 19.

The average monthly gross wage probably grew 3.8 percent from a year earlier, the slowest pace in 15 months, according to the median estimate of 27 economists surveyed by Bloomberg News. The release is due April 17.

“This week’s data will show a significant economic slowdown and stagnation in the labor market, giving strong arguments against a rate increase,” Maciej Reluga, chief economist at Bank Zachodni WBK (BZW) said in a note to clients today.

March core inflation and producer prices, also due this week, will add to evidence that there is a “lack of demand pressure,” Reluga said.

Polish consumer prices were last at the central bank’s target in September 2010. The largest eastern European economy’s expansion rate has exceeded 4 percent for six quarters through the end of 2011 and the pace of growth in the first quarter of this year was also about 4 percent, Belka said last week.

‘Rather Low’

“Personally, I’d expected a much quicker fall in the inflation rate -- instead, it’s stabilized at an elevated level,” Zielinska said, adding that she’s still debating on “how effective using monetary policy tools would be, given that inflation is being driven by supply” and that “real interest rates in Poland are rather low.”

The council raised the benchmark rate four times by a combined 1 percentage point between January and June last year.

Poland’s economy, the only one in the European Union to dodge a recession in 2009, expanded an estimated 4.3 percent last year and is expected to slow to 2.3 percent next year, the slowest pace since 2009, according to the central bank’s forecast.

“We’ve refrained from rate increases until now due to the external situation,” Zielinska-Glebocka said, listing also other arguments such as the “supply-nature” of inflation, which, as driven mainly by commodities prices, may be resistant to interest rate increases. She also said last year’s interest- rate increases “haven’t had time to take full effect.”

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

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

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