Bloomberg News

Polish Inflation Drops to New Low to Give More Rate-Cut Room (1)

June 13, 2013

Polish inflation slowed to a new seven-year low in May, leaving an opening for the central bank to cut interest rates for the eighth time in less than a year.

Consumer prices advanced 0.5 percent from a year earlier, the Warsaw-based statistics office said today, below the median estimate of 36 economists in a Bloomberg survey. Annual price growth was the lowest since March 2006. Prices fell 0.1 percent from April.

The Narodowy Bank Polski last week trimmed its benchmark rate to a record 2.75 percent as policy makers seek to counter a slump that may crimp this year’s economic growth to 1.5 percent, the worst since 2002, according to government forecasts. While July inflation projections from the central bank will determine whether the easing cycle continues, the slowdown is “deeper and more sustained” than policy makers had expected, Governor Marek Belka said June 5.

“Poland’s economy is stagnating and CPI will stay below 1 percent until the fourth quarter,” Jaroslaw Janecki, Societe Generale SA’s chief economist for Poland, said in Warsaw before the data were released. “The probability of another rate cut is quite high.”

The zloty weakened to 4.2631 per euro at 2:16 p.m. in Warsaw, erasing earlier gains and leaving the currency virtually unchanged on the day. The yield on the 10-year government bond fell three basis points after the data to 3.818 percent, extending its decline from yesterday to eight basis points.

The European Union’s largest eastern economy is suffering as the continent’s debt crisis dulls demand for Polish exports and limits government spending. The May inflation figures mean price growth has stayed below the lower boundary of the central bank’s 1.5 percent-3.5 percent tolerance range for four months.

“I would expect the zloty to continue to have a weakening bias, reflective of the weak growth/inflation story,” Tim Ash, chief emerging markets economist at Standard Bank Plc in London, wrote in an e-mail after the data were released.

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


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