Bloomberg News

Zloty Rallies, Bonds Slump as Poland Unexpectedly Holds Rates

October 03, 2012

The zloty rallied and bond prices fell as Poland’s central bank unexpectedly left interest rates unchanged after the slowest economic growth in almost three years.

The zloty jumped 0.6 percent to 4.0866 per euro as of 5:55 p.m. in Warsaw, having declined before the announcement. Yields on five-year bonds rose five basis points to 4.22 percent, data compiled by Bloomberg show.

The decision to hold interest rates at a three-year high of 4.75 percent was expected by eight of 35 analysts surveyed by Bloomberg, while the remaining 27 forecast a quarter point reduction. Poland’s gross domestic product growth slowed to 2.4 percent in the second quarter, down from 3.5 percent in the first quarter and the least since 2009, as domestic demand contracted amid a debt and economic crisis in the euro region.

“The market was fully expecting a cut,” Rafal Benecki, chief economist for Poland at ING Groep NV in Warsaw, wrote in an e-mailed comment. “We may see stronger zloty and weakening of the shorter” dated bonds, although the “reaction should be rather limited and transitory,” Benecki wrote.

Governor Marek Belka said at a news conference following the decision that the central bank “will ease monetary policy” next month should data show the economy slowing further and limited inflation risks.

Investors in interest-rate derivatives are expecting policy makers to cut borrowing costs 100 basis points over the next year, with 12-month forward-rate agreements trading 1.1 percentage point below the three-month Warsaw Interbank Offered Rate, according to data compiled by Bloomberg.

Inflation

The decision comes after central banks in the Czech Republic and Hungary cut borrowing costs last week in response to slowing demand from the euro area, the biggest trading partner for east European economies. Polish policy makers have to weigh weakening growth against inflation that has stayed above their 2.5-percent target for 23 months.

Fitch Ratings today cut its forecast for Polish growth this year and next to 2.5 percent while saying the economy will still “outperform” average growth rates in the region and in the 27- member European Union, according to a report.

“What goes around comes around,” Piotr Bielski, an economist at Bank Zachodni WBK SA, wrote in an e-mailed comment. “The upcoming macroeconomic data will confirm that economic slowdown is protracted while the risk of increase in inflationary pressure is limited.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


Burger King's Young Buns
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus