Bloomberg News

Polish Central Bank Keeps Benchmark Rate Unchanged at 4.75%

June 06, 2012

Poland’s central bank, the only one in the European Union to raise borrowing costs this year, left its benchmark interest rate unchanged as Governor Marek Belka said the economy had a “balanced soft landing.”

The Narodowy Bank Polski in Warsaw kept the benchmark seven-day interest rate at 4.75 percent today, the highest since January 2009 and in line with the expectations of all 35 economists surveyed by Bloomberg News.

Rate setters increased borrowing costs last month and warned they may tighten policy further if inflation fails to slow and the economy avoids a sharp slowdown. Data released since showed that first-quarter economic growth was the weakest since 2010, while a manufacturing gauge indicated an economic contraction for a second straight month.

“It’s not a dramatic, but a balanced soft landing of the economy,” Governor Marek Belka told a news conference in Warsaw, commenting on the first-quarter gross domestic product figures. Slowing industrial output is showing “a downward adjustment, but not a deep one,” he added.

The zloty stayed stronger against the euro after the decision, trading at 4.3186 at 5:01 p.m. in Warsaw, up 1.4 percent on the day. The average yield on the two-year government bond was little changed at 4.78 percent.

GDP Slows

GDP expanded 3.5 percent in the first quarter from a year earlier after growing 4.3 percent in the previous three months, the Central Statistical office reported May 31. The purchasing- managers’ index declined to 48.9 points in May, remaining for a second month below 50, a level indicating a contraction, HSBC Holdings Plc (5) said June 1.

With the euro region slipping toward a recession amid budget-cutting austerity measures and a flare-up of the debt crisis, export-growth slowed to 4.8 percent in the first quarter from 9.2 percent in the same period last year, the Central Statistical Office said May 31. Exports contribute 43 percent to Polish GDP.

The European Central Bank also left interest rates on hold today, keeping its benchmark at a record low of 1 percent. In eastern Europe, the Czech central bank last month left its main interest rate at 0.75 percent for a 16th meeting and Hungary held the EU’s highest benchmark rate at 7 percent for a fifth month.

As Polish companies reported weak demand, linked in part to uncertainty in European markets, the volume of new orders declined for the fourth successive month in May. The downturn in demand from Polish manufacturers’ export markets was the fastest since June 2009, even as a weaker zloty made their products more attractively priced, according to the HSBC report.

‘Moderately Hawkish’

The zloty lost 4.9 percent against the euro in May for the worst slide in eight months, marking the second-steepest decline among more than 20 emerging-market currencies tracked by Bloomberg after the Russian ruble.

“Nobody expected a rate change,” Rafal Benecki, chief economist at ING Bank Slaski SA (BSK) in Warsaw, said by phone. “Policy makers will keep up moderately hawkish language and keep the door open for an increase, mainly because of the weaker zloty, but we don’t see rates moving again this year.”

Inflation, which was 4 percent in April, has stayed above the central bank’s target of 2.5 percent since October 2010. Price growth will probably hover above 4 percent in the coming months on increased demand from the European soccer championship co-hosted by Poland this month and lower grain output, Monika Kurtek, chief economist at Bank Pocztowy, said by phone before the rate decision.

“All that, plus recent zloty weakness, will give some central bankers cause to keep warning of a possible rate increase,” said Kurtek, adding that borrowing costs will probably stay unchanged until the end of the year.

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

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


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