Bloomberg News

Poland Holds Rate at Three-Year High Even as Growth Slows

September 05, 2012

Poland’s central bank kept borrowing costs unchanged for a fourth month at the highest level since 2009 even after the economy expanded at the weakest pace in almost three years.

The Narodowy Bank Polski left the benchmark seven-day interest rate at 4.75 percent, the highest since January 2009, in line with the expectations of 27 of 28 economists surveyed by Bloomberg News. One economist predicted a rate cut to 4.5 percent. The zloty pared its decline against the euro after the announcement while bonds were steady.

The central bank, the only one in the European Union to raise borrowing costs this year, increased the benchmark in May after keeping it unchanged for almost a year. While policy makers said Poland’s expansion in the face of Europe’s debt crisis allowed them to focus on inflation, growth slowed more than economists forecast in the second quarter, bolstering the case for monetary easing.

“Should upcoming data confirm a further weakening of economic conditions, and should the risk of an increase in inflationary pressures be limited, the Council will consider an adjustment of monetary policy,” the bank said in a statement today. Governor Marek Belka declined to comment on the possible scale of rate cuts at a news conference after the decision.

Slowing Growth

The zloty traded 0.3 percent stronger per euro at 5:50 p.m. in Warsaw, rebounding from a six-week low 4.2176 before the rate decision. Two-year government zloty bond yields increased six basis points, or 0.06 percentage point, to 4.06 percent, according to generic data compiled by Bloomberg.

“An interest-rate cut right now would be a correct move, justified by the current and expected economic situation regarding GDP and inflation,” Maciej Reluga, chief economist at Bank Zachodni WBK said in a note today. “Apparently the MPC prefers gradual changes in monetary-policy parameters, disregarding the fact that the economic outlook has deteriorated substantially since the previous meeting in July.”

Gross domestic product rose 2.4 percent in the second quarter from a year earlier, the slowest pace since the third quarter of 2009 and down from 3.5 percent in the January-March period as companies and consumers scaled back spending amid the debt crisis. Poland sells more than half its exports to the 17- nation euro region, where the debt crisis is crimping demand.

Lower Forecast

The government, which has kept its target for 2.5 percent growth this year, yesterday lowered its prediction for 2013 to 2.2 percent from 2.9 percent, according to the 2013 draft budget. Belka said he had a similar view on the economy to the one set out in the budget.

While central banks across the world are undertaking the broadest cut in borrowing costs since 2009 to avert a global slump, the Narodowy Bank Polski has kept rates at their highest since 2009 for a second year.

The central bank’s statement after today’s meeting should be seen as “opening” a path for potential interest-rate cuts, Belka said, adding “whether it will happen and when, can’t be currently determined.”

Reduction Room

Forward-rate agreements are trading 47 basis points below the Warsaw interbank offered rate, signaling bets for almost two quarter-point rate reductions over three months, according to data compiled by Bloomberg. The yield on five-year government bonds in zloty was at 4.24 percent today, near yesterday’s record low of 4.22 percent.

“We will receive a batch of key economic data in November, including our inflation and growth projections. It doesn’t mean, however, that already in October we won’t receive sufficient information confirming an unfavorable tendency that has started to develop in the economy,” Belka said.

The zloty has weakened 2.4 percent to the euro, the second- biggest decline among 25 emerging currencies chased by Bloomberg after the forint, since Aug. 28, when Belka announced a change in policy bias and Hungary unexpectedly lowered rates by a quarter-point.

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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