Bloomberg News

Zloty Weakens and Bond Yields Fall as Belka Signals Rate Cuts

September 26, 2012

The zloty retreated and Poland’s two-year bond yields hit a one-week low after Governor Marek Belka was reported as saying that the need for rate cuts is “obvious.”

The zloty weakened 0.3 percent to 4.1468 per euro, the second-worst performer among more than 20 emerging-market currencies tracked by Bloomberg. The yield on notes maturing in July 2014 fell four basis points to 4.12 percent as of 5:49 p.m. in Warsaw, the lowest level since Sept. 19.

Poland’s monetary easing should come as a “cycle” rather than a one-time move, Belka was quoted today as saying by PAP newswire. He didn’t say whether he will support a cut from the current 4.75 percent level at the Oct. 3 meeting, according to PAP. The comments come after retail sales growth slowed in August while industrial output increased the least in 34 months.

“Dovish Belka comments should seal expectations for an interest-rate cut in October,” Ernest Pytlarczyk and Marcin Mazurek, economists at BRE Bank SA in Warsaw, wrote in an e- mailed research note. “This may weaken the zloty,” as the currency hasn’t yet fully discounted the reduction in borrowing costs, the analysts wrote.

The current zloty exchange rate isn’t “fueling inflation” and is neutral for economic growth, Belka told PAP.

Poland’s lenders are already signaling they expect the central bank to reverse its May interest-rate increase with the three-month Warsaw interbank offered rate tumbling 18 basis points in four weeks, the biggest decline since April 2010.

Easing ‘Cycle’

Traders in derivatives market are predicting a total of almost 1 percentage point in cuts a year from now, based on the difference between the three-month Wibor and prices for 12-month forward rate agreement contracts compiled by Bloomberg.

Investors “should keep in mind that a monetary easing cycle is coming” and policy makers will discuss the possibility of cutting rates next week, PAP reported Belka as saying.

Growth in the European Union’s largest eastern economy slowed to 2.4 percent in the second quarter, the weakest pace in almost three years as domestic demand shrunk and public works slowed, piling pressure on the central bank to cut rates.

Policy maker Andrzej Bratkowski, who called for a 50 basis- point cut, told Radio PiN last week the country’s base rate should be “much lower” than now as the risk of a “shallow recession” has risen.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at

To contact the editor responsible for this story: Gavin Serkin at

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