Poland’s central bank, which left its benchmark interest rate unchanged for a ninth month yesterday and reiterated a bias toward raising it, will need to lower borrowing costs as economic growth slows, Citigroup Inc. and Capital Economics Ltd. said.
The Narodowy Bank Polski kept the seven-day interest rate at 4.5 percent, the highest since January 2009, saying “prospects for inflation slowing to the target didn’t improve.” It raised its forecast for price growth this year, while cutting it for 2013, when economic expansion will probably decelerate.
“The debate will turn from concerns over inflation to concerns over growth,” William Jackson, an emerging-markets economist at Capital Economics in London said in a report, predicting the benchmark rate will fall to 4 percent in the second half of 2012.
Poland’s economy, the only one in the European Union to dodge a recession in 2009, expanded 4.3 percent in the fourth quarter as exports and investments grew while public consumption declined. Spending cuts and high unemployment, along with a euro-region recession, will damp growth this year, the government forecasts.
The central bank’s Monetary Policy Council raised borrowing costs four times in the first half of 2011 to tame inflation, which has remained above the 3.5 percent upper end of the regulator’s tolerance range since last January.
“The economy slowing in the coming quarters as well as the weak labor market and consumer demand will prompt the Council to ease monetary policy,” Cezary Chrapek, an economist at Citigroup’s Polish unit in Warsaw, said by phone. That would confirm “rate-increase warnings were only rhetoric.”
He forecasts 75 basis points of interest-rate increases during the next 12 months.
Six-month forward-rate agreements, used to lock in future interest-rate levels, traded 12 basis points below the Warsaw interbank offered rate today, suggesting investors are betting borrowing costs will remain on hold.
As rate moves require at least a year to affect the economy, any increase during the coming months would harm economic growth in 2013, when, according to the central bank’s outlook, gross domestic product will probably expand at the slowest pace since 2009.
“With fiscal policy tightening this year due to constitutionally enshrined debt limits, the onus will fall on monetary policy to tackle weaker growth,” Jackson said.