Bloomberg News

Poland May Pause Cuts as Crisis Eases, Rate Setter Says

January 14, 2013

Poland may put monetary easing on hold before resuming any rate cuts as a better “mood” in the crisis-hit euro area may boost the European Union’s biggest eastern economy, central banker Elzbieta Chojna-Duch said.

Polish economic growth is poised to slow to about 1.5 percent in 2013 from an estimated 2 percent last year, while inflation may have decelerated in December “even below” the central bank’s 2.5 percent target, according to rate-setter Chojna-Duch, who spoke in an interview on Jan. 11 in Warsaw.

“That means interest-rate cuts were and are justified and monetary policy remains biased toward easing,” Chojna said. “However, a pause is likely as the Monetary Policy Council may need to see if the crisis in the euro zone really is heading toward the end.”

Poland’s exports to the 17-nation euro region, its main market, shrank an annual 2.3 percentage points in the 11 months through November, the Central Statistical Office reported Jan. 11. In addition to weaker foreign demand, domestic consumption is falling with unemployment probably reaching a 10-month high of 13.3 percent in December, according to the Labor Ministry.

Still, the single-currency region is showing signs that the debt crisis that began more than three years ago in Greece may be easing. Last month, economic confidence in the euro area reached a five-month high and in Germany, which buys a quarter of Polish exports, business sentiment rose more than economists had estimated.

The zloty traded at 4.12 per euro at 4 p.m. in Warsaw, down 0.3 percent from Jan. 11. The yield on the government’s two-year zloty bond fell 4 basis points to 3.41 percent.

Slowing Growth

Poland’s economy, the only one in the 27-nation EU to avoid a recession in 2009, probably expanded 2.2 percent to 2.3 percent last year, below the government’s forecast, Deputy Minister Ludwik Kotecki said on Dec. 31. While the government predicts an expansion of 2.2 percent this year, Chojna-Duch’s 1.5 percent growth forecast matches the central bank’s outlook and would be the slowest pace since 2002.

“The mood is better in the euro region, but the hard data to support that is missing,” Chojna-Duch said. “A pause in our rate cuts could be taken to assess whether prospects for Poland and the euro zone are better.”

Following a third straight rate cut that lowered the benchmark by a combined 75 basis points to 4 percent on Jan. 9, Governor Marek Belka didn’t rule out another reduction next month or in March. He said “a certain round” of monetary easing may be coming to an end as “you can’t go on in the same policy mode forever.”

‘Exaggerated’ Expectations

Poland’s monetary-easing cycle is at an end or will cease after next month’s rate meeting, MPC member Adam Glapinski was quoted today as saying by PAP newswire.

“If we have more easing, it will be a maximum of one cut,” PAP cited Glapinski as saying. “Analysts’ expectations for the benchmark at around 3 percent are exaggerated.”

Investors are betting on more rate reductions. Six-month forward-rate agreements, used to speculate on official borrowing costs, gained 29 basis points today to 3.32 percent, indicating three quarter-point cuts by June, data compiled by Bloomberg show.

Still, comments by policy makers such as Chojna-Duch suggest that MPC “may hold rates in February and await a new inflation projection and another set of weak economic data before resuming cuts,” Rafal Benecki, chief economist at ING Bank Slaski in Warsaw, said in an e-mailed comment.

Misunderstood Signal

Chojna-Duch, who has been among the most outspoken supporters of rate cuts, said that at the moment, “a deeper reduction could be misunderstood and taken as a signal that the economy is in worse shape than it actually is.”

Chojna-Duch and Andrzej Bratkowski were the only two members of the 10-member MPC to object to last May’s rate increase, the only one by a central bank in the EU last year. She has since always backed cuts, including two motions for a half-point reduction, according to available voting tallies.

“The slowdown is a fact, but the risk of a recession in Poland is very low,” she said.

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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