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Poland May Mull Rate Cuts Amid Benign Inflation, Belka Says

Poland’s central bank doesn’t predict a pickup in inflation, leaving it free to cut interest rates to boost economic growth if required, Governor Marek Belka said today in Beijing.

“We have the ability to use interest rates to stimulate the economy, if needed,” Belka told reporters today at a news briefing after meeting China’s central bank Governor Xiaochuan Zhou. Any increase in the inflation rate in the next few months would probably stem from the statistical base of low price growth from a year ago, he said.

Economic growth may decelerate to about 2 percent from a year earlier for one or two quarters, Belka said, adding that “if that were to happen, the slowdown will be followed by a rebound.” The Warsaw-based Narodowy Bank Polski left borrowing costs unchanged for a second month last week, when Belka said that he’s “more worried about economic growth and less worried about inflation” than a month ago.

The central bank raised rates in May and has maintained a bias toward tightening since then as inflation exceeded the target for 20 months. The economy is set to grow 2.7 percent this year compared with 4.3 percent last year, according to the European Commission. Poland’s central bank is the only one in the European Union to raise borrowing costs this year.

‘Powerful Effect’

Forward rate agreements, or FRAs, used to speculate on interest rates, dropped to 35 basis points below the Warsaw interbank offered rate at 6:39 p.m. in Warsaw, the most since January 2009 and showing expectations for rate cuts of more than a quarter-point within six months, according to data compiled by Bloomberg. The 10-year bond yield fell 14 basis points to 4.97 percent, a six-year low.

“Belka’s remarks had a powerful effect on the market, but I wonder whether he wanted to send such a strong signal,” Piotr Kalisz, chief economist at Citigroup’s Bank Handlowy unit in Warsaw, said by phone today. “Only a few days ago he was upholding a restrictive bias after the July rate meeting.”

Polish companies are less confident about their business prospects in the third quarter as the outlook for new orders worsened “significantly,” the central bank said today in a survey of 1,185 companies published on its website.

The number of companies that see excessive inventories rose 2.7 percentage points to 13.4 percent, while capacity utilization dropped 1.1 percentage point to 79.9 percent in the second quarter, according to the survey.

Confidence Falls

“Confidence fell in expectations for the next 12 months as well, though companies predict a gradual weakening of the growth dynamics rather than sudden changes of a crisis nature,” the bank said.

Today’s survey showed inflationary expectations by Polish companies declined for a second quarter, the bank said. Companies foresee a decline in prices of commodities and other materials used in manufacturing as well as in prices of their own products.

The zloty declined to 4.2077 per euro at 6:43 p.m. in Warsaw from 4.1869 late yesterday. The yield on the government’s two-year bond fell 2 basis points to 4.58 percent.

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