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Polish Central Bank Seen Holding Rates for Ninth Month

Poland’s central bank will probably refrain from cutting interest rates and leave borrowing costs unchanged as the economy grows six times faster than the euro-region average and inflation holds above target.

The Narodowy Bank Polski will leave the benchmark seven-day interest rate for a ninth month at 4.5 percent, the highest since January 2009, at a meeting today, according to all 36 economists surveyed by Bloomberg. The bank will announce its decision after 12 p.m. in Warsaw with a news conference to follow at 4 p.m., where a guideline for an updated economic outlook will also be released.

“It’s quite clear that inflation staying much above the target for a number of months already creates some internal pressure within the Monetary Policy Council, which does not feel comfortable with a high growth plus high inflation environment,” Maciej Reluga, chief economist at Bank Zachodni WBK, said in a report.

Poland’s main interest rate is at a three-year high as inflation has stayed above the 3.5 percent upper limit of the central bank’s target range since December 2010. Rates are now at an appropriate level and any change will hinge on the central bank’s new inflation forecast, Jerzy Hausner of the Monetary Policy Council said Feb. 28. Consumer prices grew 4.1 percent in January from the same month a year earlier.

Policy makers in the Czech Republic and Hungary left rates unchanged last month amid a temporary spike in inflation.

“The inflation path in the March projection will be the key for interest rates in the coming period,” said Wiktor Wojciechowski, chief economist at Invest Bank in Warsaw. Rates will hold steady until the end of the year, he said.

Economic Growth

Poland’s economy expanded 4.3 percent in the fourth quarter from a year earlier, topping the 4.1 percent median forecast of 27 economists surveyed by Bloomberg, the statistics office said March 1. Growth was boosted by a 10.3 percent jump in investment, fueled by EU subsidies spent on roads, bridges and farm modernization. Strong growth and high inflation may trigger an interest rate increase, central bankers said in recent weeks.

“The new GDP projection will be probably lowered on a weaker economy in the euro region, while inflation will be probably seen higher,” Piotr Kalisz, chief economist at Citigroup Inc.’s Polish unit Bank C Handlowy SA in Warsaw, said in a report.

‘Relatively Fast’

The central bank is “more likely to keep rates unchanged or raise them” than cut borrowing costs, Monetary Policy Council member Anna Zielinska-Glebocka told private broadcaster TVN CNBC on March 1. Most council members said rate increases can’t be ruled out if Poland sustains “relatively fast” economic growth and an “elevated” inflation rate, according to the minutes of the January rate meeting published on Feb. 23.

Six-month forward-rate agreements, used to bet on future interest-rate levels, traded six basis points below the Warsaw interbank offered rate yesterday, the smallest gap in three weeks, suggesting investors expect the central bank to leave rates unchanged in the coming months.

The zloty, up 8.6 percent against the euro this year, is still 9.1 percent weaker against the euro than in April 2010, when it hit 3.83, its highest since the global financial crisis. The zloty slump last year helped Polish exporters and boosted prices of imported goods boosting inflation together with commodities prices.

The zloty traded at 4.1612 per euro at 9:44 a.m. in Warsaw, up from 4.1676 late yesterday.

Upward Revision

Governor Marek Belka said March 2 the statistics office’s 2011 full-year economic growth estimate of 4.3 percent “is probably going to be revised up somewhat,” and while a slowdown should be expected this year, the economy will still expand at least 3 percent.

The government has stuck to its 2012 GDP growth target of 2.5 percent even as JP Morgan and PKO Bank Polski recently both raised theirs to 3 percent. The European Commission last month kept its forecast for Poland’s economy to expand 2.5 percent this year, the fastest growth in the 27-member bloc.

“This means the commission shares the view that our economy is resistant to external shocks,” Marek Rozkrut, director of the Finance Ministry’s Analysis and Statistical Department in Warsaw ,said in a March 2 interview. “The indicators point to the start of a recovery in the euro area, even if we have to wait for it until the second half of the year. In this scenario, Poland would weather the EU slowdown relatively easily.”

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