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Poland to Halt Rate Increases After 100 Basis Points in 2011

Poland's Central Bank Governor Marek Belka
Poland's central bank governor Marek Belka. Photographer: John Guillemin/Bloomberg

Poland’s central bank said it will pause after raising interest rates four times this year, arguing that a percentage point of tightening may be enough to slow inflation to its target.

The Narodowy Bank Polski raised the seven-day interest rate by a quarter-point to 4.5 percent yesterday and central bankers “plan to wait before making any more policy moves,” Governor Marek Belka told a news conference in Warsaw after the decision.

Policy makers in Warsaw accelerated rate increases to prevent rising food and fuel prices from boosting inflation. The 10-member rate-setting panel said it will leave the benchmark unchanged to see whether this year’s tightening from record-low rates will alleviate the pressures that boosted consumer-price growth to the fastest in 31 months.

“The council also indicated quite clearly that it is approaching the end of the monetary tightening cycle,” said Maja Goettig, chief economist at Bank BPH SA, in an e-mail. The post-decision statement, together with Belka’s comments, “clearly indicate a pause in interest rate hikes, at least until September.”

At today’s auction of the zero-coupon government bond maturing in 2013, the yield fell to 4.84 percent, the lowest since an auction on Dec. 1 last year and down from 5.11 percent at a May 12 sale.

The zloty weakened to 3.9550 per euro from 3.9499 late yesterday.

Door ‘Remains Open’

Poland’s benchmark interest rate now matches the latest consumer-price index figure after Poland’s inflation accelerated to 4.5 percent in April from 4.3 percent in March, exceeding the central bank’s 2.5 percent target for a seventh month. This compares with the euro zone’s 1.25 percent, after the European Central Bank today left its key rate unchanged.

The central bank is “still in the tightening cycle,” Belka said, and the Monetary Policy Council didn’t rule out further increases if the prospects of inflation slowing to the target worsens. The benchmark rate will probably rise to 4.75 percent before the end of the year, according to Goettig at BPH.

“Doors to further hikes remain open,” said Piotr Bujak, an economist at Bank Zachodni WBK, in a note to clients. “In our view, persisting inflation above 4 percent in the remainder of the year will prompt the MPC to deliver one more hike of 25 basis points in the autumn.”

‘Significant Convergence’

Two-year interest-rate swaps, which investors use to protect themselves against the risk of changes in borrowing costs, rose to 5.103 percent at 2:32 p.m. in Warsaw after falling 8 basis points in reaction to yesterday’s comments by Belka. A basis point is the equivalent of 0.01 percentage point.

“In general, there is a significant convergence in the council and the market’s expectation” about future monetary policy, Belka told reporters.

The spread between two-year and 10-year rate swaps will widen to 55 basis points from the current 26 basis points after the central bank’s comments, Salomon Guillaume, an emerging-market strategist at Societe Generale SA, wrote in an e-mailed note today.

Hungary was the first of the European Union’s eastern members to begin raising interest rates. The central bank increased its benchmark rate in November, December and January by a total of 0.75 percentage-point to 6 percent. Inflation accelerated to 4.7 percent in April, the fastest in 10 months.

Czech policy makers have kept their main rate unchanged at 0.75 percent for the past year. The country’s inflation rate fell to 1.6 percent in April, the lowest in 10 months.

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