Poland Leaves Rates at Record Low as Economy Starts to Recover

Poland left its main interest rate at a record low amid signs the European Union’s largest eastern economy is emerging from the slowest growth (POGDYOY) in four years.

The 10-member Monetary Policy Council kept the reference rate at 2.5 percent, the Warsaw-based central bank said today in a statement. That matched all 38 estimates in a Bloomberg survey of economists. Governor Marek Belka will hold a news conference at 4 p.m. in Warsaw to explain the decision.

The central bank lowered borrowing costs by a quarter-point in July to end a nine-month cycle of rate cuts, with Belka saying that “the road to recovery is open.” Growth in the $490 billion economy accelerated in the second quarter as the euro area, the destination for 51 percent of Polish exports, emerged from its longest recession on record.

“The improving balance of payments and lack of bond outflows for now allow Poland’s central bank to keep rates steady, in contrast to many emerging-market economies,” Rafal Benecki, chief economist at ING Bank in Warsaw, said in a research note today before the decision was announced.

After the decision, the zloty held on its 0.4 percent advance today to 4.2585 per euro at 12:39 p.m. in Warsaw, trimming this year’s decline against the common currency to 4.2 percent. The government’s 10-year bond yield was unchanged at 4.65 percent.

India, Brazil

Hungary’s central bank last week slowed the pace of interest-rate cuts as the U.S. Federal Reserve’s plan to scale back bond buying triggered an exodus from emerging-market assets. Policy makers in India and Brazil raised borrowing costs in August to shore up their currencies.

After Poland’s central bank eased borrowing costs by 2.25 percentage points since November, there’s a “wide consensus” among policy makers to keep rates steady for an “extended period,” Belka said in comments posted Aug. 21 on the central bank’s Obserwatorfinansowy.pl website. More rate cuts “could be harmful,” he was quoted as saying.

Data suggest economic growth has begun to gather pace. Gross domestic product rose 0.8 percent from a year earlier in the third quarter, accelerating after an increase of 0.5 percent in the previous three months, the slowest rate since 2009.

Improving foreign demand helped Poland record its third monthly trade surplus in June, the first such streak since the data series began in 2000. Industrial output grew at the fastest pace in 18 months in July, while retail sales increased the most since last August.

Slowest Pace

The recovery began mid-year and it would be “safe” to expect that growth will reach 1.2 percent to 1.3 percent in 2013, Ludwik Kotecki, the Finance Ministry’s chief economist, said told TVN CNBC on Aug. 20. Still, that would be the slowest pace since 2001.

Policy will continue to focus on economic growth during the next year, according to a Bloomberg survey of 16 economists, which predicts borrowing costs will remain at 2.5 percent through the third quarter of 2014. The first rate increase may come next June, according to forward-rate agreements, derivatives used to wager on interest-rate levels.

While inflation unexpectedly quickened to 1.1 percent in July, it remains below policy makers’ 2.5 percent target. Consumer prices will rise 1.2 percent next year and 1.5 percent in 2015, the central bank’s staff projects.

Inflation is “clearly under control and there is nothing to worry about,” Anna Zielinska-Glebocka, a member of the central bank’s Monetary Polish Council, was cited as saying by the PAP newswire on Aug. 21. Jan Winiecki, another member, who’s voted against rate cuts since February, told TVN CNBC last week that there’s no need for rate changes in “the near term.”

“There seems to be an agreement among policy makers that there’s no need to change interest rates until the end of this year, or even the end of the first quarter,” Janusz Dancewicz, chief economist at DZ Bank Polska SA, said yesterday by e-mail. “Recent positive surprises in monthly data serve as a strong argument for the Council to balance its rhetoric.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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