Polish Interest-Rate Increase More Likely in First Half, Bratkowski Says

A Polish interest-rate increase before July is becoming more probable as economic growth this year outpaces the government’s forecasts, monetary policy maker Andrzej Bratkowski said.

Gross domestic product may increase 3.5 percent in 2012, Bratkowski said in an interview yesterday in Warsaw, compared with the government’s estimate of 2.5 percent. Poland’s economy, the only one in the European Union to escape a recession in 2009, expanded 4.3 percent last year as grants to the 27-member bloc’s poorer members spurred infrastructure investment while a weaker zloty helped exports.

“The question is less and less whether, and more and more when to raise rates,” Bratkowski said. “It’s getting more likely that a rate hike will be necessary in the first half of the year.”

While policy makers from the European Central Bank to Brazil have cut interest rates over recent months in an effort to stimulate economic growth, the Narodowy Bank Polski has left its seven-day interest rate at 4.5 percent since June. The bank raised borrowing costs by 1 percentage point in the first half of last year as inflation accelerated to a decade-high 5 percent, double the central bank’s target.

Output Acceleration

Industrial output grew 9 percent in January from the year- earlier period, the fastest pace since February 2011. Poland’s purchasing managers’ index rose for the first time in three months in January, indicating greater confidence in the economy.

After weeks of wrangling, Greece reached an agreement with its private creditors, paving the way for an accord with other European governments on a 130 billion euro ($173 billion) bailout. Investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility, helping to reduce Greece’s debt burden by 107 billion euros, about half the country’s estimated output for 2011.

The accord will bolster investor confidence and may limit the effect Europe’s debt crisis will have on slowing economic growth, Bratkowski said.

“We can expect that growth in Poland will be higher because we don’t expect any dramatic slowdown in the EU’s economy,” Bratkowski said. This will result in higher market confidence in Poland, “which means the zloty will probably be stronger and the profitability of bonds will be lower, which will support our fiscal consolidation plans.”

Currency Moves

The Polish currency has strengthened 6.9 percent against the euro this year, the third-best performance of some 170 currencies tracked by Bloomberg. The zloty, which dropped 11 percent in the second half of last year, was “undervalued” and is “returning to its correct level,” Jan Krzysztof Bielecki, who heads Prime Minister Donald Tusk’s council of economic advisers, said in an interview last week.

Investors are still expecting rate cuts, according to forward-rate agreements, which investors use to fix borrowing costs in the future. The gap between nine-month forward-rate agreements and the main interbank rate is 24 basis points.

Not ‘Fantastic’

The currency’s gains helped slow inflation to 4.1 percent in January from 4.6 percent the month before, the gauge remaining above the central bank’s target of 2.5 percent for a 16th month. It’s “fairly unlikely” that inflation will return to the goal without rate increases, Bratkowski said. The zloty fell to 4.1808 against the euro as of 4:50 p.m. in Warsaw from 4.1701 yesterday.

The central banker’s views contrast with comments made yesterday by Governor Marek Belka, who said that while inflation is too high, this is mainly due to imported goods such as fuel. Oil traded near a nine-month high today after euro-area finance ministers agreed on a bailout package for Greece, potentially boosting fuel demand.

“The January inflation figures weren’t fantastic,” Bratkowski said, noting that the data were in line with policy makers’ predictions that price growth would slow. “The zloty’s appreciation gives us more time to observe developments, but this state of affairs can’t continue for too long. With each month that goes by, there is less room to simply monitor the situation and more need to take a decision on interest rates.”

To contact the reporters on this story: Katya Andrusz at kandrusz@bloomberg.net; 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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