Investors in Polish interest-rate swaps may profit by betting that borrowing costs will not rise this year or in 2011, Danske Bank AS said in a recommendation that runs counter to economists’ projections and market gauges.
The bank recommends investors receive a fixed rate of 4.77 percent for two years in exchange for floating-rate payments in anticipation that the fixed rate will fall to 4.58 percent within the next three months, according to a research note issued by the bank today.
Derivatives traders, as indicated by forward-rate agreements, raised bets that the central bank may lift its benchmark interest rate from a record low of 3.5 percent after a report last week showed inflation accelerated in September. The main rate is likely to climb to 4.5 percent by end of 2011, according to the median estimate of 12 banks surveyed by Bloomberg News. That includes a quarter-point increase by the end of this year.
“There is no sign that the economy is moving into an overheated scenario,” Lars Christensen, chief emerging-market analyst at Danske Bank, said by phone from Copenhagen. “If anything we are returning into the situation where Polish economy is growing in line with its long-term trend and inflation is where it should be.”
Danske Bank predicts Poland’s annual inflation rate will rise to 2.7 percent at the end of this year and 2.9 percent at the end of 2011, Christensen said. That’s higher than the 2.5 percent annual inflation rate as of last month, according to a government report on Oct. 13. The rate now matches the central bank’s target.
‘No Peer Pressure’
Still, it’s unlikely that Poland will raise rates in the next year, possibly causing the zloty to appreciate, when the Federal Reserve plans more monetary stimulus that might cause the dollar to weaken, Danske Bank said. European Central Bank President Jean-Claude Trichet today rejected Bundesbank President Axel Weber’s call to end the bond purchase program that has shored up the finances of Europe governments and banks.
“There is no peer pressure to hike interest rates,” Christensen said. “You don’t want to hike and call attention to yourself in this excessive liquidity environment and cause the zloty to strengthen.”
Capital inflows have the potential to “derail monetary policy,” Polish central bank Governor Marek Belka said on Oct. 9. The economy is expanding at a “moderate” pace with limited wage and inflationary pressures, policy makers said in a statement explaining last month’s decision to keep rates unchanged.
The country’s gross domestic product is likely to expand by 3.4 percent in 2010, tying with Germany as the fastest-growing of major European economies including Spain, France, Italy, the U.K. and the Netherlands, according to European Commission estimates.
Three-month forward-rate agreements, money market contracts used to speculate on changes in interest rates, rose to trade at 4.23 percent, or 41 basis points higher than the current three-month Warsaw Interbank Offered Rate of 3.82 percent, according to data compiled by Bloomberg. The spread, or differential, has widened from 33 basis points on Oct. 12, before the inflation data came out.