Poland unexpectedly holds rates even as expansion slows
2012-10-03 15:42:27
Poland’s central bank unexpectedly left borrowing costs unchanged, rejecting calls to undo the European Union’s only interest-rate increase this year even after the economy expanded at the slowest pace since 2009.
The Narodowy Bank Polski kept the benchmark seven-day interest rate at 4.75 percent today. Eight economists in a Bloomberg survey predicted no change, while 27 expected a 25 basis-point reduction. The bank, which increased the rate a quarter-point in May, will comment at a 4 p.m. news conference in Warsaw.
While central banks around the world have eased borrowing costs to avert a recession, Poland has kept rates at the highest since 2009 to tame inflation as the economy proved resistant to Europe’s debt crisis. Still, the expansion slowed in the second quarter to 2.4 percent from a year earlier, after growing 3.5 percent in the January-March period.
“They decided to err on the conservative side,” Lars Christensen, a Copenhagen-based economist at Danske Bank A/S (DANSKE), said by phone today. “The market was quite aggressively priced for cuts and now we have to see why they’re hanging back, but twelve months ahead, we’ll still have rates 75 to 100 basis points lower.”
The zloty strengthened 0.6 percent after the decision, trading at 4.0902 per euro at 1:54 p.m. in Warsaw, compared with 4.1171 before the release. The five-year government bond yield jumped as much as 6 basis points after the decision and traded at 4.17 percent, up 3 basis points on the day, at 1:56 p.m. in Warsaw.
Data Points
Consumer-price growth has exceeded the bank’s 2.5 percent goal since October 2010. While inflation slowed to 3.8 percent in August from 4 percent in July, the central bank forecasts it will remain above the target until early next year.
Recent data have added to signs that the EU’s biggest eastern economy is slowing. In August, Polish industrial output rose at the lowest rate since October 2009, while retail-sales growth slowed for a fourth month. Last month, manufacturing deteriorated for a sixth month, falling to the lowest level since July 2009, according to the purchasing managers’ index.
While European Central Bank President Mario Draghi calmed markets roiled by the debt crisis last month by announcing a bond-purchase plan, the ECB still forecasts a 0.4 contraction this year for the euro-area economy, the main market for Polish exports. The 17-nation region’s jobless rate rose to 11.4 percent last month, the highest since the data began in 1995.
‘Obvious’ Need
Even with the economy slowing and the euro area heading for a recession, Polish central bankers have been divided over whether to cut rates. Governor Marek Belka has said the need to ease policy is “obvious,” while Andrzej Kazmierczak, a member of the 10-people Monetary Policy Council, has said disinflation must be clearly sustained before any a rate reduction.
Still, investors believe the cuts will come. Three-month forward-rate agreements dropped to an average 49 basis points below the Warsaw interbank offered rate last month, the biggest gap since February 2009, signaling bets for almost two quarter- point rate reductions by the end of 2012, according to data compiled by Bloomberg.