Polish Central Bank Leaves Main Rate at 4.5% for Ninth Month

Poland’s central bank left its benchmark interest rate unchanged for a ninth month as the economy grows six times faster than the euro-region average and inflation holds above target.

The Narodowy Bank Polski kept its seven-day interest rate at 4.5 percent, the highest since January 2009, at a meeting in Warsaw today. The decision matches the forecasts of all 36 economists surveyed by Bloomberg. The bank raised its inflation forecast for this year, while predicting slower economic growth.

“Even though central bankers would like inflation to return faster to the target, they’re unlikely to hike rates given the expected slowdown in growth,” Piotr Bujak, chief economist at Nordea Bank Polska in Warsaw, said after the statement. “The fact that some market players expected a more hawkish message from led the zloty to weaken.”

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. Borrowing costs are now at an appropriate level and any change will hinge on the central bank’s new inflation forecast, Jerzy Hausner of the rate-setting Monetary Policy Council said Feb. 28. Consumer prices grew 4.1 percent from a year earlier in January.

More Probable Scenario

Six-month forward-rate agreements, used to bet on future interest-rate levels, traded 12 basis points below the Warsaw interbank offered rate today, suggesting investors expect borrowing costs to remain on hold.

“Unchanged rates seem to be the most probable policy scenario over the next few months,” Jaroslaw Janecki, chief economist at Societe Generale in Warsaw, said after the decision. “The key risk for the Monetary Policy Council is that inflation will stay persistently above target for too long, and that means their rhetoric will probably stay hawkish.”

The central bank toughened its language on prices, saying it wouldn’t exclude further rate increases if “positive signals continue on Poland’s economic growth prospects and, at the same time, the outlook for inflation slowing to the target doesn’t improve.” In earlier statements, policy makers said they wouldn’t rule out tightening if the inflation outlook worsened.

‘Slowing Too Slowly’

“Our forecasts show inflation is slowing too slowly,” Governor Marek Belka told a news conference after today’s decision. “We aren’t satisfied with the pace at which inflation is heading toward the target. The horizon is too far.”

While he reiterated that a rate increase is more likely than a cut, he said central bank projections for the medium-term inflation outlook had been lowered “significantly.”

The Monetary Council forecasts 2012 consumer-price growth of 3.3 percent-4.1 percent, up from a previous estimate of 2.5 percent-3.9 percent. Inflation will slow to 2 percent-3.3 percent next year, compared with an earlier projection of 2.2 percent-3.7 percent, the rate-setting panel said. The forecasts were adjusted after the central bank’s initial projections to include zloty gains and data reported after Jan. 24.

The zloty gained to 4.1625 against the euro as of 6:51 p.m. in Warsaw, 0.1 percent stronger on the day. The yield on the two-year bond due January 2014 fell to 4.629 percent from 4.677 percent yesterday.

While the zloty has gained 7.3 percent against the euro this year, it’s 7.1 percent weaker against Europe’s common currency than two years ago. A slump in the zloty last year helped Polish exporters and boosted prices of imported goods, spurring inflation.

GDP Expands

Poland’s economy expanded 4.3 percent from a year earlier in the fourth quarter, 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 for 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 probably be lowered on the weaker economy in the euro region, while inflation will probably be seen higher,” Piotr Kalisz, chief economist at Citigroup Inc.’s Polish unit Bank Handlowy SA in Warsaw, said in a report before the decision.

March Projection

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

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,” Wiktor Wojciechowski, chief economist at Invest Bank in Warsaw, said before the decision. Rates will hold steady until the end of the year, he said.

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