Bloomberg News

Polish GDP Risk Sparks Rate-Increase Doubt, Kazmierczak Says

May 02, 2012

Poland’s risk of slowing economic growth raises doubts over whether a rate increase is warranted, said Andrzej Kazmierczak, a central banker who’s sought higher borrowing costs for almost a year.

While the Monetary Policy Council may discuss a quarter- point increase after inflation topped the regulator’s target for an 18th month, Poland faces risks such as a euro-area recession, decreased funding for local units of western European banks and higher energy prices, Kazmierczak said in an April 30 interview.

“The list of risks is not only long, but the risks are also intensifying, increasing the threat of a Polish economic slowdown,” he said in Warsaw. “It may be the first time that a week before a rate meeting I haven’t decided what I’ll do.”

Investors are watching the Narodowy Bank Polski for signs of the timing of a rate increase as inflation has remained above 3.5 percent, the upper end of policy makers’ tolerance range, since 2011. The central bank said it will consider raising rates at the May 8-9 policy meeting.

Policy makers will leave the benchmark interest rate at 4.5 percent next week, according to nine of 14 economists in a Bloomberg survey. Five predict a quarter-point increase to 4.75 percent.

‘Difficult to Justify’

“It would be difficult for the council to justify a rate hike in the current environment,” Piotr Kalisz, an economist at Citigroup Inc. (C:US) in Warsaw, wrote in an April 30 note. “We expect interest rates to remain on hold until the end of 2012.”

The zloty traded at 4.1602 per euro at 11:07 a.m. in Warsaw from 4.1533 yesterday. It gained 7.3 percent against Europe’s common currency this year, the fourth most among more than 20 emerging-market currencies tracked by Bloomberg behind the Hungarian forint, the Colombian peso and the Russian ruble. The yield on the 10-year government bond was little changed at 5.40 percent.

The majority of the 10-member MPC rejected an increase motion last month, seeking more data to gauge the extent at which the economy is slowing. Since then, figures have shown industry and retail-sales growth decelerated. Manufacturing contracted last month, with the purchasing manager’s index falling to 49.2 from 50.1 in March, HSBC Holdings Plc (HSBA) said in an e-mail today, summarizing a survey by Markit Economics.

‘Strong Signal’

“New orders fell at the fastest rate for nearly three years, while output was little-changed from March and purchases of new inputs also contracted,” HSBC said in the e-mail, adding that cost inflation pressure eased “slightly but remained strong,” while employment in the sector rose “marginally.”

Tightening monetary policy wouldn’t curb corporate demand for credit and would prevent second-round inflationary effects, sending “a strong signal” on the council’s resolve to combat inflation, said Kazmierczak, who opposes starting a cycle of rate increases.

“Support for growth can’t really be an excuse for tolerating such stubbornly high inflation,” he said.

Gross domestic product will advance 2.5 percent in 2012, less than last year’s 4.3 percent increase, as Europe’s debt crisis damps foreign demand for Polish goods, the government predicts. The euro region, which buys more than half the nation’s exports, will contract 0.3 percent this year, the International Monetary Fund forecasts.

Taming Inflation

The central bank raised its benchmark rate in four steps by a total of one percentage point to 4.5 percent in the first half of 2011 to tame price growth. Kazmierczak was the only MPC member to vote last July for another quarter-point increase. Since then, the only motion to raise borrowing costs came in April, with details of how council members voted due late May.

After that decision, the bank said it may raise interest rates as early as this month. Governor Marek Belka warned on March 27 against increasing rates too soon. The bank said March 7 that prices may rise 2.2 percent to 3.6 percent in 2013.

“Pros balance cons, so I’ll be looking carefully at all the arguments and making a decision at the very last moment,” Kazmierczak said. “So will the other members of the council. This meeting is crucial as the risk of a mistake is big.”

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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