Bloomberg News

Polish December Rate Cut Already Decided, Glapinski Says

November 27, 2012

Poland’s central bank will cut its benchmark interest rate in December for a second month as growth in the European Union’s biggest eastern economy slows to its weakest since 2009, policy maker Adam Glapinski said.

“A quarter-point rate cut next week is already decided,” Glapinski said in a telephone interview yesterday in Warsaw. “A third rate cut or fourth rate cut won’t be so obvious, though.”

The Narodowy Bank Polski reduced borrowing costs for the first time since 2009 on Nov. 7 as the bank’s new projections showed that the expansion, stunted by the euro region’s slump, will ease to 1.5 percent next year, the least since 2002 and down from 4.3 percent in 2011.

Poland, the only EU economy to avoid a recession in 2009, is struggling to maintain growth after the sovereign-debt crisis drove the 17-nation euro area into its second recession in four years. Along with an easing of monetary policy, Prime Minister Donald Tusk has relaxed his budget-deficit goals and pledged $95 billion in investment spending over the next decade to avert a slump.

The zloty, which weakened to as much as 4.1041 per euro late yesterday after Glapinski’s comments, was trading at 4.0983 at 3:44 p.m. in Warsaw. The zloty has gained almost 9 percent this year against the euro, the second-best performance in the world after Hungary’s forint, according to data compiled by Bloomberg. The yield on the government’s two-year zloty bond was down 6 basis points at 3.56 percent.

While rate-setters such as Andrzej Bratkowski have called for a “radical” reduction of the benchmark to 3 percent from the current 4.5 percent, Glapinski said he’s “definitely not among those policy makers who support monetary policy easing by 100 basis points or more.”

Anti-Inflationary Impact

He said data last month confirmed the economy is weakening, though it provided “no indications on the strength of the anti- inflationary impact.” Consumer-price growth probably won’t ease as much as predicted by the central bank, said Glapinski, a member of the 10-person Monetary Policy Council that holds its next rate meeting on Dec. 4-5.

In its latest forecast, the central bank said inflation will decelerate to 2.5 percent by mid-2013, meeting its target for the first time since September 2010 as consumption and investment decline. In two years, the rate will drop to 1.5 percent, the lowest rate since 2007 and the bottom of the bank’s tolerance range, according to the forecast.

‘Doves’ Camp

“Glapinski’s comment that the third or fourth rate cut won’t be so ‘obvious’ may suggest that the council may consider a break in monetary-policy easing in January, or there will be a problem with getting a majority to continue cutting interest rates,” Jaroslaw Janecki, a Warsaw-based economist at Societe Generale, said by phone. “In our view, as inflation slows, the ‘swing’ part of the council may change its view and join the ‘doves’ camp next year.”

The inflation rate will probably fall to below 3 percent in November and December, Janecki forecasts.

Three-month forward-rate agreements, used to speculate on interest rates, are 67 basis points below the Warsaw Interbank Offered Rate, showing expectations for almost three quarter- point cuts by mid-February increased seven basis points in the past two days, according to data compiled by Bloomberg.

Poland’s economy probably grew 1.8 percent in the July- September period from a year earlier, the least in 12 quarters, according to the median forecast of 32 economists in a Bloomberg survey ahead of the Nov. 30 data. Gross domestic product increased 2.3 percent in the second quarter from a year earlier, the slowest pace in 11 quarters.

‘Decisive’ Cuts

Bratkowski, speaking in an interview on Radio PiN yesterday, urged a rate reduction of 1.5 percentage points, including a cut of more than half a point next week. MPC member Elzbieta Chojna-Duch called this month for “decisive, deeper” cuts, while policy maker Anna Zielinska-Glebocka reiterated today in an interview with PAP newswire that she favors easing totaling 100 basis points, including last month’s reduction.

Central banker Jerzy Hausner said another lowering of rates is expected in December, though he declined to comment on its scale, according to an interview posted on the central bank’s Obserwator Finansowy website today. Jan Winiecki, in an interview with TVN CNBC last week, said he’s “inclined to support one more cut by a quarter point.”

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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