The Narodowy Bank Polski lowered the seven-day reference rate by a quarter-point to 3 percent today, matching the estimate of 11 of 38 economists surveyed by Bloomberg. (POREANN) Two predicted a half-point cut and 25 forecast no change in borrowing costs.
Policy makers resumed reductions after a pause last month as inflation slowed to its weakest in more than six years and manufacturing shrank the most in 45 months in April. While the reduction in borrowing costs shouldn’t be seen as a start of a new round of monetary easing, a further cut or unchanged rates are possible when policy makers meet next, Governor Marek Belka said at today’s news conference.
“Today’s decision should be treated as a certain adjustment of what we announced two months ago and implemented last month,” Belka said today. “We concluded that consumer-price growth and high-frequency data show that the inflation rate could stay on a very low level.”
Bond yields extended their decline and derivative traders stuck to their wagers on more rate cuts to come. Ten-year government bond yields dropped 15 basis points to 3.10 percent. Forward-rate agreements are factoring in at least 50 basis points of cuts in the next six months, according to the difference between the contracts and the Warsaw interbank offered rate.
Belka has joined his counterparts in the euro area, Hungary and Australia in embracing record-low rates as the debt crisis on Poland’s border curbs growth and consumer prices. Poland is fighting against the steepest slowdown in more than a decade.
The European Central Bank last week cut interest rates for the first time since July and President Mario Draghi said the slowdown “has spread to parts of the euro area where so far the transmission of monetary policy has never been questioned.” Hungary reduced borrowing costs for a ninth month in April and the Reserve Bank of Australia cut the benchmark rate to a record low yesterday, weakening the currency.
The recession in the 17-nation euro area, which buys 52 percent of Polish exports, has put a damper on growth. The European Commission last week cut its 2013 growth forecast for Poland to 1.1 percent, the slowest in 12 years, from 1.2 percent seen previously.
“The data flow had been pretty supportive of a move lower in rates,” Timothy Ash, chief emerging-markets economist at London-based Standard Bank (SBK) Group Ltd., wrote in an e-mail. “This likely swung the ‘swing’ voter Belka into the easing camp.”
Policy makers reduced borrowing costs by a total of 150 basis points between November and March. They didn’t cut last month because of “ambiguous” signs of a recovery, minutes of the meeting showed.
Since then, a report showed the purchasing managers’ index, a gauge of manufacturing, fell to 46.9 in April, HSBC Holdings Plc (HSBA) said this month. The weakest reading since July 2009 was accompanied by “downside risks building up” in the euro area, it said. Nothing in the first-quarter data suggests “a breakthrough” in economic growth, the statistics office said last month.
Weak domestic demand coupled with the government’s drive to reduce the budget deficit sent inflation to 1 percent in March, the lowest since June 2006. The central bank, which last May unexpectedly raised rates amid the slowdown to curb price growth, is targeting inflation at 2.5 percent.
“The Monetary Policy Council may have to be more reactive than what they would like to be,” Raffaella Tenconi, an economist at Bank of America Corp. and one of two forecasters who predicted a half-point cut today, said yesterday in an e-mailed note. “Inflation persistently below the target corridor of 1.5 percent-3.5 percent puts high pressure on the MPC to act.”
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