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Polish Bonds Rally as Slowing Inflation Prompts Rate Cut Call

Polish bond yields fell as a report showing inflation grew at the slowest pace since December 2010 prompted central banker Anna Zielinska-Glebocka to call for quicker interest-rate cuts.

The yield on notes maturing in July 2014 declined eight basis points to 3.65 percent as of 4:15 p.m. in Warsaw, a record low for a two-year benchmark. The zloty appreciated 0.3 percent to 4.1727 per euro, paring this month’s drop to 0.9 percent, the second-steepest among more than 20 emerging-market currencies.

Polish consumer prices slowed below the upper end of the central bank’s tolerance range for the first time in almost two years with index falling to 3.4 percent from 3.8 percent in September, according to statistics office. Policy makers should move as “quickly as possible” to cut the benchmark interest rate to 3.75 percent by the end of the first quarter from 4.5 percent, Zielinska-Glebocka said in TVN CNBC interview today.

“Declining inflation, along with constantly deteriorating growth perspectives, will influence the Monetary Policy Council’s stance,” Ernest Pytlarczyk, chief economist at BRE Bank SA in Warsaw, wrote in an e-mailed note today. “Market expectations of rate cuts can thus be constantly stimulated by new economic releases.”

Rates Reversal

BRE Bank expects the central bank to reduce borrowing costs by a total of 150 basis points, including a quarter percentage point reduction on Nov. 7. Policy makers have reversed their decision to increase rate in May after reports showed the economy slowed to its weakest pace in almost three years because of the euro debt crisis.

Gross domestic product probably decelerated further to 1.8 percent in the third quarter from 2.3 percent in the second quarter, the statistic office will say on Nov. 30, according to a median estimate in a Bloomberg survey of 26 economists.

“The choice is between a 25 basis-point and a 50 basis-point cut in December,” Rafal Benecki, chief economist for Poland at ING Groep NV in Warsaw, said in e-mailed comment today.

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