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Polish Inflation Accelerates for Third Month on Weaker Zloty

Polish inflation was the fastest in six months in November on a weaker zloty, narrowing the room for policy makers to shield economic growth from the euro region’s crisis with lower borrowing costs.

Consumer prices rose 4.8 percent from a year earlier after a 4.3 percent increase in October, the Warsaw-based Central Statistical Office said today. The median estimate of 30 economists in a Bloomberg survey was 4.5 percent. Prices rose 0.7 percent from the previous month.

Inflation has been above the central bank’s 2.5 percent target since September last year even after the bank raised the benchmark seven-day rate by a combined 1 percentage point in the first half of 2011. The Monetary Policy Council left borrowing costs unchanged last week for a sixth month, saying a weak zloty is the biggest inflation risk.

“Looking at today’s data, it will be hard to get inflation down to the target rate over the next year,” Grzegorz Maliszewski, chief economist at Bank Millennium SA, said by phone after the release. “The central bank is going to be very cautious in changing its policy now - we can expect rates to stay unchanged for a good while.”

The zloty tumbled 13 percent against the euro in the past six months, the biggest drop among currencies tracked by Bloomberg. Poland sells 54 percent of its exports to the euro area and western banks own 59 percent of its bank assets.

The Polish currency was little changed after the data, trading at 4.5613 per euro at 6:50 p.m. in Warsaw, also little changed on the day.

Rate Expectations

Investors pared their expectations for interest-rate cuts in Poland following the data. Two-year interest-rate swaps rose 3 basis points to 4.85 percent. Twelve-month forward rate agreements that investors use to fix borrowing costs in the future rose six basis points to 4.65 percent to stand 33 basis points below the three-month Warsaw Interbank Offered Rate.

November prices were driven by food costs, which grew 4.5 percent on year, and transport prices, which accelerated an annual 11 percent, including a 19.4 percent increase in prices of fuel for individual transport.

“A considerable effect of zloty depreciation on consumer prices can postpone the inflation’s return to the central bank’s target,” Maciej Reluga, chief economist at Bank Zachodni WBk said in a note to clients.

Inflation Outlook

Inflation will start slowing next year and may reach 3.5 percent on the year or even the central bank’s target of 2.5 percent by May or June, Elzbieta Chojna-Duch of the Monetary Policy Council said today in an interview on TVN CNBC, adding the central bank should refrain from any “drastic” action in the first months of 2012 with the first possibility of a change in interest rates coming in March.

Another policy maker, Anna Zielinska-Glebocka of the Monetary Policy Council, was quoted as saying by PAP newswire after the data release that there is “no chance for the Polish central bank to cut interest rates in the first half of next year and increases in domestic borrowing costs are more likely than cuts.”

Economic slowdown in the euro region and a weaker zloty offset each other as far as the impact on inflation goes, keeping “the chances for rate moves either way” unchanged since the meeting last month, central bank Governor Marek Belka said Dec. 7.

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