“Two quarter-point cuts are most likely,” Glapinski said in an interview in Warsaw on Nov. 10. The Monetary Policy Council “sent a clear message and will stick to its typically cautious approach.”
Last week, the Narodowy Bank Polski cut the benchmark interest rate for the first time since 2009 as growth in the European Union’s biggest eastern economy slowed to its weakest in three years. The bank’s new inflation and GDP projection showed that the expansion, blunted by the euro region’s slump, will ease to 1.5 percent next year, the least since 2002 and down from 4.3 percent in 2011.
As consumption and investment fall, inflation will decelerate to 2.5 percent by mid-2013, meeting the central bank’s target for the first time since September 2010. In two years, the rate will drop to 1.5 percent, the lowest rate since 2007 and the bottom of the bank’s tolerance range, according to the forecast.
The zloty weakened 0.3 percent to 4.1693 against the euro at 2 p.m. in Warsaw, paring this year’s gains to 7 percent, according to data compiled by Bloomberg. The yield on two-year zloty bonds rose four basis points to 3.74 percent.
“Anything can happen if the slowdown triggers a radical drop in the inflation rate,” Glapinski said, indicating the bank may consider a larger scale of monetary easing. Still, he advised “a very close reading” of public statements by policy makers as “at some point, the council will have to state clearly when the easing cycle is to come to an end.”
Three-month forward-rate agreements were 60 basis points below the three-month Warsaw Interbank Offered Rate on Nov. 9, implying half a point in reductions by the end of January.
In August, they indicated expectations for a quarter-point cut within three months, data compiled by Bloomberg showed. Twelve-month FRAs were at 101 basis points below the three-month Wibor, signaling bets of four quarter-point reductions.
“Decisive, deeper rate cuts in the coming months are in order,” another central banker, Elzbieta Chojna-Duch, said in an interview with TVN CNBC today when asked whether the council should reduce borrowing costs by half a point.
In May, as the European Central Bank held borrowing costs, the Narodowy Bank Polski delivered the EU’s only rate increase of 2012. It raised the benchmark to a three-year high 4.75 percent, observing its price-stability mandate over concerns about a worsening economic outlook. Poland’s inflation rate, the EU’s second-highest, was 3.8 percent in September.
It probably fell to 3.4 percent last month, the slowest since November 2010, according to the median estimate of 30 economists surveyed by Bloomberg. The Central Statistical releases the data on Nov. 14. The bank allows a divergence of plus or minus 1 percentage point from its price-growth target.
Glapinski calls inflation “stubbornly high” and is “skeptical” about prospects for its return to the target by mid-2013 or to below it in 2014. The economic slowdown will be “relatively short-lasting and free of any recession risks,” and “won’t have such a strong disinflation impact as projected.”
Glapinski was among eight policy makers on the 10-member council to vote for May’s rate increase after calling for a boosting borrowing costs each month since the start of the year. He opposed cuts in July and September. The vote breakdown for October will be released this week and in two months for last week’s rate reduction.
Contrary to some economists’ views, the rate-cut decision wasn’t “obvious” and doubts about starting an easing cycle are “fully justified,” Glapinski said. Inflation in the coming months “will be decisive for future monetary policy.”
Jan Winiecki, also a member of the council, said he “doesn’t believe” the inflation rate will meet the target in the first half of 2013.
Winiecki, who was speaking in an interview for TVN CNBC today, said he is “inclined to support one more cut by a quarter point” and then he would “monitor the situation in the real economy for some time.”
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