Polish Yields Fall to Record as Output Drop Spurs Rate-Cut Bets

Polish government bond yields plunged to record lows after the nation’s industrial output dropped more than expected in March, spurring speculation of more monetary easing to bolster a slowing economy.

The yield on five-year bonds fell seven basis points, or 0.07 percentage point, to 2.95 percent at 2:56 p.m. in Warsaw, sliding for a fifth day.

Production slipped 2.9 percent from a year earlier, after decreasing 2.1 percent in February, the Central Statistical Office in Warsaw said today. The median estimate of 32 economists in a Bloomberg survey was for a 2.2 percent contraction. The slide in output follows worse-than-expected data on wage growth released yesterday. The rate council should cut borrowing costs by 50 basis points next month if March macroeconomic data are “weak,” policy maker Andrzej Bratkowski was cited as saying by Reuters yesterday.

“The worst is not yet over” for the Polish economy, Rafal Benecki, chief economist at Warsaw-based ING Bank Slaski SA (ING), wrote in a note. He expects interest rates to be cut by 50 basis points before August.

The central bank left its benchmark seven-day rate unchanged at 3.25 percent for the first time in five months on April 10, as policy makers retained a “wait-and-see” stance after reductions by a total of 150 basis points between November and March sent the key reference rate to a record low of 3.25 percent.

Nine-month forward rate agreements, derivatives used to speculate on interest rate levels, traded 64 basis points below the Warsaw Interbank Offered Rate, showing scope for more than two quarter-point cuts by the end of the year.

The zloty strengthened 0.1 percent to 4.1133 per euro, gaining for the first time in four days, as flows into Poland’s bond market offset the expectations for interest rates cuts that are negative for the currency, according to ING’s Benecki.

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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