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Polish Inflation, PMI Drops May Help Keep Rates at Record Low

June 1 (Bloomberg) -- Poland’s inflation rate probably fell to the lowest since August 2007 last month as manufacturing declined, strengthening expectations the central bank will keep its key interest at a record low.

Inflation probably slowed to 2.1 percent from 2.4 percent in May, the Finance Ministry in Warsaw said today in an e-mailed statement. The median estimate in a Bloomberg survey of seven economists was 2.4 percent. The Purchasing Managers Index dropped to 52.2 from 52.5 in April, HSBC Holdings Plc said today in an e-mailed statement. The median estimate was 52.

The decline in the purchasing index reflected a slower rate of new orders as demand from domestic clients waned, according to the survey conducted by Markit, a London-based financial information provider. Corporate employment held steady from a year earlier in April after a 0.6 percent decline in March, the Central Statistical Office said May 19.

“The employment index stayed below the recovery level, which does not augur well for private consumption during the rest of the year,” Kubilay Ozturk, an economist at HSBC in London, said in the statement. “The next action on the rate front will probably be upward, following a neutral stance for a prolonged period.”

Poland’s central bank has kept its key interest rate at record-low of 3.5 percent for almost a year.

‘Loss of Momentum’

Economic growth slowed to 3 percent in the first quarter from 3.3 percent in the previous three months, the statistics office said yesterday. Gross domestic product was held back by a harsh winter that led to a slump in fixed investment.

“The loss of momentum in the economy adds risks to the downside for the speed of recovery, but the weather related part of the slowdown is likely to be offset in the second quarter,” said Anders Svensen, an economist at Nordea Bank in Copenhagen.

Even so, Markit said new business orders from abroad increased at the fastest pace since March 2007 and indicated a weaker zloty is improving exporters’ competitiveness.

The zloty fell 0.9 percent to 4.1142 per euro as of 12:27 p.m. in Warsaw. The currency declined almost 4 percent against the euro in May, the worst performance among 25 emerging market currencies tracked by Bloomberg.

Narodowy Bank Polski forecasts a slow economic recovery and waning consumer demand will push the inflation rate as low as 1.4 percent by the third quarter, less than the bank’s 2.5 percent target. Prices probably rose 0.2 percent in May from a month earlier, the Finance Ministry said today.

The Warsaw-based Central Statistical Office is scheduled to report May inflation on June 15.

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net;

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net.

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