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Polish Rates May Rise in April as Inflation Hits Two-Year High

Polish consumer prices probably grew in February at the fastest pace in almost two years, bolstering arguments for the central bank to raise interest rates next month to curb inflation expectations.

Consumer prices rose an annual 3.9 percent, compared with 3.8 percent in January, according to median estimate of 24 economists polled by Bloomberg. That would be the highest annual rate since April 2009. The Central Statistical Office is due to publish the report today at 2 p.m. in Warsaw. Prices probably increased 0.4 percent from a month earlier.

“Any reading above 3.8 percent will probably trigger more hawkish comments as the inflation rate approaches levels deemed dangerous even by the Monetary Policy Council’s more dovish members,” said Jaroslaw Janecki, chief economist at Societe Generale in Warsaw.

The Narodowy Bank Polski left borrowing costs unchanged this month after a quarter-point increase in January, citing lagging investment growth and high unemployment. Still, Governor Marek Belka said that more rate increases should be expected as stronger economic growth boosts wage and price pressures, which may keep inflation expectations at “elevated” levels.

Forward-rate agreements used to lock in interest costs indicate the central bank’s benchmark seven-day rate may increase 25 basis points to 4 percent next month, based on the difference between the three-month FRA and the Warsaw Interbank Offered Rate which it is settled against. The Polish zloty reached its weakest intraday level in more than three months at 4.0435 against the euro on March 11.

‘Out of Control’

“There’ll be no shortage of inflation drivers in the coming months, so the central bank needs to react adequately to keep inflation expectations from sliding out of control,” said Janecki of Societe Generale. “It’s also important that the zloty is undervalued, so even though the last rate increase was two months ago, it’s difficult to justify keeping rates at their current levels.”

Twenty-five of 26 economists surveyed by Bloomberg predicted the central bank will decide to raise rates at least once in the second quarter; eight said it will do so twice.

Andrzej Bratkowski, a member of the rate-setting panel, said above-target inflation requires a “vigorous response” from the central bank, whose 2011 policy guidelines call for keeping annual price changes as close as possible to the 2.5 percent target. Bratkowski said interest rates should rise 50 basis points, or half a percentage point, by the end of June.

Policy makers around the world are struggling to contain accelerating inflation, which is being driven by surging food and fuel prices. The European Central Bank may raise interest rates next month, President Jean-Claude Trichet said on March 2.

Following Hungary

The central bank raised interest rates in January from a record-low 3.5 percent, the first increase since 2008. Poland was following Hungarian policy makers, who started tightening policy in November to tame inflation.

January’s inflation rate may be revised because of the statistical office’s annual changes to the basket of goods and services.

“Shoppers have probably found cheaper substitutes for some expensive products,” which may affect the basket weightings, said Marcin Mrowiec, the chief economist at Bank Pekao in Warsaw. He forecast the January consumer-price index will be revised to 3.7 percent.

Price growth was also driven by higher value-added taxes, which the government lifted to boost budget income and narrow the fiscal deficit.


While policy makers are “uncomfortable” with the prospect of inflation exceeding 4 percent this year, the central bank’s projections show inflation is nearing a peak and will probably slow in the second half, Belka said on March 2.

According to the latest version of the central bank’s inflation report, published on March 7, average annual inflation will accelerate to 3.2 percent this year from 2.6 percent in 2010, then slow to 2.8 percent in 2012. The cutoff date for data used to compute the report’s forecasts, which assume unchanged interest rates, was Jan. 26.

“Figures published since then suggest the short-term inflation risks are higher than those given in the report,” said Grzegorz Maliszewski, chief economist at Bank Millennium SA in Warsaw.

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