Poland to Preserve Plan to Hold Interest Rates After Inflation Surprise

Poland’s central bank will stick to its plan of keeping interest rates unchanged after inflation last month accelerated more than economists estimated, policy makers said.

Consumer prices rose 4.3 percent from a year earlier after a 3.9 percent increase in September, exceeding the 4 percent median estimate of 25 economists in a Bloomberg survey, the statistics office in Warsaw said yesterday. The outcome affirms the central bank’s plan to hold rates, monetary policy makers Elzbieta Chojna-Duch and Anna Zielinska-Glebocka said.

The Narodowy Bank Polski left its benchmark seven-day rate at 4.5 percent for a fifth month on Nov. 9. Policy makers raised borrowing costs four times between January and June by a total of 1 percentage point to combat inflation, which in May reached a decade-high 5 percent.

“The combination of recent zloty weakness and stronger- than-expected real economy data through recent months points to" the Monetary Policy Council ‘‘remaining firmly in wait-and-see mode for some time ahead,’’ Caroline Grady, an economist at Deutsche Bank AG in London, wrote in a note to clients yesterday.

Zloty Slide

The Polish currency has lost 5 percent against the euro in the past three months, the seventh-worst performance among 31 major currencies tracked by Bloomberg. The zloty rose 0.1 percent to 4.427 per euro at 2:20 p.m. in Warsaw from a two-week low yesterday.

Following the inflation report, Polish six-month forward rate contracts, which some investors use to bet on changes in borrowing costs, extended their gains to 4.76 percent, narrowing the gap with a three-month Warsaw Interbank Offered Rate to below 17 basis points from 20 basis points yesterday. Bonds rose, pushing the yield on five-year notes 2 basis points lower to 5.18 percent.

Poland’s inflation rate will probably fall to the central bank’s 2.5 percent target by the middle of next year, central bank Governor Marek Belka told Polsat News today.

The zloty is ‘‘divorced from fundamentals” and remains “quite weak,” Belka said, adding that global currency markets will stay prone to volatility.

Inflation Forecast

The central bank bank raised its inflation forecast to 3.1 percent next year from 2.7 percent and cut its economic-growth forecast to 3.1 percent from 3.2 percent. The price of fuel, the most heavily weighted imported item in the consumer-price index, soared an annual 16.1 percent in October, the fastest pace of growth since May 2010.

“Setting the policy rate is on the back seat at the moment,” Rafal Benecki, an economist at ING Bank Slaski, said in an e-mailed comment. “Weaker activity data and a return of CPI to the target range are important preconditions for a switch of the policy approach from the current quasi-restrictive bias to neutral or easing.”

He expects both to happen in the first quarter of 2012, with the inflation rate returning to the 2.5 percent target of policy makers in the second quarter. The zloty stabilizing is a third trigger as rate cuts should be consistent with the new active role of the central bank on the foreign currency market, Benecki said.

GDP Effect

Slowing domestic demand will play a role in damping inflation, which may have peaked last month, according to Piotr Kalisz, the chief economist at Citigroup Inc.’s local unit, who sees a risk of the zloty’s weakness boosting inflation.

The government is scaling down its forecasts for economic growth next year to a maximum 3.2 percent in the most optimistic of three scenarios for the 2012 budget plan, compared with a previous forecast of 4 percent, Finance Minister Jacek Rostowski said Nov. 9.

The “medium” version forecasts 2012 growth at 2.5 percent, while the “recession” variant foresees a 1 percent contraction, he said.

“We have found ourselves in a situation in which turmoil abroad dampens the growth of Poland’s economy and, on the other hand, leads to zloty depreciation, boosting inflation,” central banker Andrzej Rzonca wrote in e-mailed answers to Bloomberg questions on Nov. 11, arguing for rates to stay unchanged to avoid making “costly mistakes.”

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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