Polish Central Bank Keeps Benchmark Interest Rate Unchanged for 15th Month

Poland’s central bank kept its main interest rate at a record low for a 15th month as consumer-price growth remained at the lowest level in three years and policy makers await updated economic forecasts.

The Narodowy Bank Polski kept its seven-day reference rate at 3.5 percent today, matching the forecast of all 23 economists surveyed by Bloomberg

The latest economic reports “especially the low inflation reading in August, weren’t enough to swing the balance toward the hawkish wing of the Monetary Policy Council,” said Maja Goettig, chief economist at Bank BPH SA in Warsaw, in a research note after the decision. Goettig forecast the panel will raise rates by a quarter-point in October.

Some policy makers have indicated they may push to raise borrowing costs this year as price growth picks up and companies boost hiring, increasing consumer spending. The central bank will update its outlook for economic production and inflation next month and may forecast price growth will exceed the 2.5 percent target sooner than it estimated in June.

“A moderate pace of economic growth with currently limited wage and inflationary pressure as well as the risk of a global economic slowdown in coming quarters justify leaving interest rates unchanged,” said the rate panel in a statement following its decision. “Likely food and energy price growth may gradually lift up the inflation rate, while the planned value- added tax increase may slightly increase prices in 2011.”

June Outlook

In the June outlook, the bank forecast inflation would overshoot the target in the third quarter of 2011 because of low interest rates and rising production costs.

The Council added it will be monitoring inflation expectations. “The majority of inflationary expectation measures currently exceed the consumer price index,” it said.

Forward-rate agreements used to speculate on rate moves three months from now slumped 7 basis points to 4.1250 percent, the biggest drop since April 16, according to data compiled by Bloomberg. That’s 39 basis points above today’s three-month Warsaw interbank offered rate of 3.74 percent, indicating the decline in market expectations for a rate rise from half a percentage point on Sept. 27.

The zloty weakened to 3.9780 per euro as of 5:21 p.m. in Warsaw, from 3.9669 before the decision was announced. The currency was down 0.3 percent for the day.

Faster Growth

Poland’s economy grew a faster-than-expected 3.5 percent in the second quarter. The central bank expects gross domestic product to expand 3.2 percent for the full year. The government late yesterday approved a 2011 budget that includes a deficit of 40.2 billion zloty ($13.7 billion).

Stronger growth has prompted economists to revise up their interest-rate forecasts for this year. The central bank’s benchmark rate will rise a quarter-point to 3.75 percent in the fourth quarter, according to the median forecast in a Sept. 24 survey of 15 economists by Bloomberg. That’s up from June’s median forecast that rates won’t change until 2011.

Retail sales rose an annual 6.6 percent last month, compared with economists’ forecasts for a 5.3 percent increase. Germany’s Ifo business confidence index rose to 106.8 in September from 106.7, driven by domestic demand. Germany is Poland’s main trading partner.

October Outlook

“Strong retail sales and the German Ifo index may prompt some members of the Monetary Policy Council to push for a rate increase this month,” economists at ING Bank Slaski wrote in an e-mailed comment. “Fast price growth expected by the Finance Ministry in September will again draw attention to increasing inflationary expectations and support our forecast of a pre- emptive rate hike in October.”

The Monetary Policy Council approved the 2011 policy guidelines, maintaining its 2.5-percent inflation target with a range of one percentage point up or below.

Separately, Governor Marek Belka said at the press conference that the central bank is not targeting any level or range for the zloty exchange rate.

“I’m not concerned about the current exchange rate,” he said, adding that he was expressing his personal view as an economist.

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

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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