Bloomberg News

Poland Cuts Main Rate for Third Meeting to Spur Flagging Economy

January 09, 2013

Poland lowered borrowing costs for a third month to spur economic growth that the central bank predicts will dip to the slowest in more than a decade in 2013.

The Narodowy Bank Polski cut the benchmark seven-day reference rate a quarter-point to 4 percent today, meeting the forecasts of all 33 economists surveyed by Bloomberg. The bank will comment on its decision at a news conference scheduled for 4 p.m. in Warsaw.

Monetary-policy makers have trimmed borrowing costs by 75 basis points since November as the economy struggles amid the debt crisis in the euro area, which buys more than half of Polish exports. Gross domestic product in the European Union’s biggest eastern economy will expand 1.5 percent this year, the least since 2002, according to the central bank.

“The economic slowdown is confirmed and inflation pressures are diminishing, meaning all the conditions to cut rates are being met,” Wiktor Wojciechowski, an economist at INVEST-Bank in Warsaw, said yesterday in an e-mailed note. “Most policy makers support a gradual reduction in borrowing costs and object to cuts of more than a quarter-point.”

The zloty, last year’s best-performing emerging-market currency with a 9.3 percent gain against the euro, has declined 0.8 percent this month.

Easing Cycle

Poland was the only EU nation to raise interest rates in 2012 as policy makers focused on elevated inflation. It began easing in November, a year after the European Central Bank, five months after the Czech Republic and three months after Hungary. Romania held borrowing costs unchanged at a record-low 5.25 percent Jan. 7 as the central bank year weighs inflation pressures against a slowdown in GDP growth.

Polish attention has switched to economic expansion, which eased to 1.4 percent from a year earlier in the third quarter, the slowest pace since 2009, as consumer-spending growth decelerated to the worst in nine years, new jobs dried up and inflation outpaced wage increases.

GDP probably rose by 2.2 percent to 2.3 percent last year, compared with 4.3 percent in 2011, according to official forecasts. Quarterly growth in the October-December period may have been less than the 0.4 percent recorded in the previous three months, Ludwik Kotecki, chief economist at the Finance Ministry, said Dec. 31 in an interview.

Inflation Target

As the economy has lost steam, inflation, which triggered last May’s rate increase after exceeding the central bank’s 2.5 percent goal for two years, slowed to a two-year low of 2.8 percent in November. It may have met the regulator’s target in December for the first time since September 2010 as domestic demand and fuel prices eased, according to a forecast by Jaroslaw Janecki, a Warsaw-based economist at Societe Generale. (GLE)

Derivatives traders predict 102 basis points of interest- rate cuts this year, based on the spread between 12-month forward-rate agreements and the Warsaw Interbank Offered Rate. Three-month FRAs point to 66 basis points, or 0.66 percentage point, of reductions through March, data compiled by Bloomberg show.

While the monetary authorities will probably “leave the door open to more easing,” the central bank may pause its rate- cutting cycle in February to digest internal GDP and inflation projections that are updated every four months, Maciej Reluga, chief economist at Bank Zachodni WBK (BZW), said in an e-mailed note before the decision.

Central bank Governor Marek Belka said he sees “continued space” for additional rate cuts, according to a December interview with the Financial Times that was published Jan. 6. Poland should continue with “conventional monetary policy” and avoid “ultra-low” interest rates, he told the FT.

To contact the reporters on this story: Dorota Bartyzel in Warsaw at

To contact the editor responsible for this story: Balazs Penz at

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