Polish Yields Fall Second Day as Inflation at Slowest Since 2006

Yields on the Polish government’s two-year notes fell for a second day, approaching last week’s all-time low, as the slowest inflation since 2006 fueled speculation the central bank may keep cutting interest rates.

The yield on benchmark two-year bonds fell five basis points to 3.01 percent at 3:10 p.m. in Warsaw, two basis points above a record close on April 8. The country’s inflation rate slowed to 1 percent in March from 1.3 percent in February, less than 1.1 percent median estimate of 34 economists surveyed by Bloomberg.

“The scope for rate cuts in Poland is large and a stronger zloty and high real interest rates continue to increase it,” BRE Bank SA economists, led by Ernest Pytlarczyk, wrote in a note after the data were released.

The zloty weakened 0.2 percent to 4.1090 against the euro, reducing this month’s gain to 1.7 percent, the third-best performance among more than 20 emerging markets currencies tracked by Bloomberg.

The central bank kept rates unchanged last week for the first time in five months, predicting record-low borrowing costs of 3.25 percent will revive the European Union’s largest eastern economy. Rate setters may consider further easing if inflation declines below 1 percent for “the longer term,” though such a decision won’t be “automatic,” Governor Marek Belka said after the April 10 meeting.

Nine-month forward rate agreements, derivatives used to bet on interest rate levels, were trading 46 points below the Warsaw Interbank Offered Rate, indicating bets for almost two more quarter-point cuts by the end of the year.

The central bank should wait until June at the earliest before potentially resuming rate cuts because it needs to “better assess” the prospects for economic recovery, policy maker Adam Glapinski said in an interview on April 12.

To contact the reporter on this story: Maciej Onoszko in Warsaw at monoszko@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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