Bloomberg News

Polish March Inflation Rate Probably Fell to 6-Year Low

April 14, 2013

Polish inflation probably slowed to its weakest pace in more than six years in March, adding to pressure on policy makers to resume cutting interest rates.

Consumer prices rose 1.1 percent, matching the lowest level since July 2006, compared with a 1.3 percent advance in February, according to the median estimate of 34 economists in a Bloomberg survey. The statistics office will publish the data at 2 p.m. today in Warsaw.

The central bank left rates unchanged last week for the first time in five months as policy makers predicted record-low borrowing costs will revive the European Union’s largest eastern economy. Rate setters may consider further easing if inflation declines below 1 percent for “the longer term,” though such a decision won’t be “automatic,” Governor Marek Belka said after the meeting.

“Policy makers have already demonstrated that they are reacting to past data and low inflation may trigger discussion on interest-rate cuts,” Grzegorz Maliszewski, chief economist at Bank Millennium SA, said by phone from Warsaw. “Two or three months of inflation staying below 1 percent may be enough to tip the scale.”

The zloty, which traded at a 4.1015 on April 12, has lost 0.4 percent against Europe’s common currency since the start of the year. The yield on Poland’s benchmark 10-year bond was at 3.559 percent, according to data compiled by Bloomberg.

‘Gradual’ Recovery

The inflation rate may decline to 0.6 percent in “the summer,” Ludwik Kotecki, chief economist at the Finance Ministry, was reported as saying by Gazeta Wyborcza on April 2. The central bank targets price growth of 2.5 percent in the medium term, with a tolerance range of 1 percentage point below and above that goal.

Policy makers delivered five rate cuts since November in a bid to save the economy from its deepest slowdown in 12 years. While they expect a “gradual” recovery, European Central Bank President Mario Draghi said this month that risks remain on the downside for the euro area. Poland sends 52 percent of exports to 17-nation currency region.

Poland’s central bank will reduce the benchmark by another 75 basis points to 2.5 percent through the end of 2013, Bank of America Corp. said April 12, revising its previous forecast for rates to drop to 3 percent.

‘Below Target’

The cuts will come as “the euro zone recovery fails to gain ground,” while inflation remains “below target,” Raffaella Tenconi, an economist at Bank of America in London, said in e-mailed report.

The euro-area recession is damping demand for Polish exports while consumers curb their spending with unemployment at a six-year high. Private consumption, which accounts for 62 percent of gross domestic product, contracted in the fourth quarter for the first time since 1996.

Derivatives traders are betting that policy makers will resume monetary easing by July with a quarter-point reduction, according to the difference between three-month forward-rate agreements and the Warsaw interbank offered rate.

Euro-area economic malaise has stymied price growth across central and eastern Europe. In Hungary, the inflation rate fell to the lowest in almost 39 years in March, while in the Czech Republic it undershot the central-bank target for a third month.

Slowing inflation isn’t “some idiosyncratic shock, but reflects tendencies we can observe” across Europe as well as emerging markets, Ernest Pytlarczyk, chief economist at BRE Bank SA in Warsaw, said in an April 12 report. “If inflation indeed declines below 1 percent in March, the market may start to price in a new round of policy easing to the tune of 100 basis points.”

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

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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