Poland’s central bank will probably cut rates for a third month in January as a “deep” economic slowdown threatens to push the inflation rate below the bank’s tolerance limit, policy maker Jerzy Hausner said.
“We have sent a clear signal that the December cut wasn’t the last one and, based on the discussion at the meeting, the next cut in January can’t be ruled out,” Hausner said in an interview in Warsaw yesterday. “If we were to pause the easing cycle, we would have signaled that.”
The central bank, which cut borrowing costs for a second month in December, was the only one in the European Union to raise rates this year as inflation exceeded its target of 2.5 percent for two years. Since May, economic growth slowed to a three-year low, while inflation returned to within the bank’s tolerance range of between 1.5 percent and 3.5 percent.
Price growth will slow “quite significantly and in a sustainable way” to the target, “pointing to the probability of further reductions” in rates, Governor Marek Belka said on Dec. 11. Another central banker, Anna Zielinska-Glebocka, said the same day on TVN CNBC that the main rate should be cut by another half a percentage point from 4.25 percent before a pause to assess the situation.
The zloty traded at 4.0937 per euro at 3:15 p.m. in Warsaw, down 0.1 percent from yesterday. The zloty has gained 9 percent this year, the second-best performance among major emerging- market currencies tracked by Bloomberg. The yield on two-year zloty-denominated government bonds rose five basis points to 3.3 percent.
Hausner, who refused to comment on the scope for monetary easing, said the bank’s next inflation and growth forecast in March will be key. “It will show the impact of current monetary easing on consumer-price growth in the next two years,” he said.
Consumer prices rose an annual 2.8 percent in November, the Central Statistical Office reported in Warsaw. That was below the 2.9 percent median forecast in a Bloomberg survey of 32 economists. Inflation was at 3.4 percent in October, when it slowed below the upper end of the central bank’s tolerance range for the first time in almost two years.
“Inflation will stay on a downward trend, slowing to the target at the start of 2013,” Piotr Lysienia, an economist at Bank Pocztowy in Warsaw, said by e-mail. “A further slowdown in consumer prices, especially in view of a weakening economy and a difficult situation on the labor market, will increase the chances for continuing monetary easing also after January.”
The central bank’s last projections in November, when it cut the benchmark for the first time since 2009, showed the expansion will ease to 1.5 percent next year, the least since 2002 and down from 4.3 percent in 2011. In mid-2014 inflation will slow below 1 percent, the lowest since the start of 2006, according to the forecast.
“The economic slowdown is so deep that inflation in 2014 is likely to slow below the lower end of our target range and we have to counteract that,” Hausner said. “I’m afraid our economy won’t return to fast growth and it will drift instead.”
Hausner, who was among eight Monetary Policy Council members to back the May rate increase, reiterated that the central bank’s top concern is price stability. During a slowdown, the economy “shouldn’t be stimulated with a monetary impulse only, as that would lead to unsustainable economic growth and expose it to more external disturbances,” he said.
Even during the easing cycle, Hausner said policy will remain “moderate, cautious and keep a reasonable disparity between rates in Poland and western Europe as well as keeping positive real interest rates.”
“Mistakes” in monetary policy contributed to economic growth slowing in the third quarter to 1.4 percent from a year earlier, the slowest pace since April-June in 2009, Finance Minister Jacek Rostowski said on Dec. 11. Because the central bank “corrected” its error, Rostowski said he expects more rate cuts to boost the recovery in the second half of 2013.
“The finance minister shouldn’t publicly dictate decisions to policy makers,” Hausner said, adding that it takes as many as eight quarters for rate reductions to have an effect on the economy.
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