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Polish Inflation Slows to Below Central Bank Upper Limit

Polish consumer-price growth slowed to below the upper end of the central bank’s tolerance range for the first time in almost two years, boosting expectations for interest-rate cuts.

The annual inflation rate fell to 3.4 percent, compared with 3.8 percent in September, the statistical office in Warsaw said today. That was under the 3.5 percent upper end of the bank’s tolerance range for the first time since December 2010, and matched the median estimate of 33 economists in a Bloomberg survey. Prices rose 0.4 percent from the previous month.

As the euro region’s crisis drags on, inflation in the European Union’s biggest eastern economy may decelerate to 2.5 percent by mid-2013, according to the Narodowy Bank Polski, meeting the central bank’s target for the first time since September 2010. Slowing price growth may boost investors’ expectations for more monetary easing after the central bank cut the benchmark rate last week for the first time since 2009.

“The data are a relief,” Anna Zielinska-Glebocka, a member of the central bank’s Monetary Policy Council, said in an interview on TVN CNBC. The bank should move as “quickly as possible” to cut its benchmark rate to 3.75 percent by the end of the first quarter, adding that it would be “realistic” to ease by 75 basis points, or 0.75 percent, through January.

Easing Expansion

The average yield on the government’s two-year Treasury bond dropped as much as seven basis points after the data to 3.64 percent and at 2:36 p.m. in Warsaw traded at 3.64 percent, down four basis points. The zloty was little changed at 4.1721 per euro, keeping its gain at 0.3 percent on the day.

“Today’s CPI reading pointing to falling inflation supports the dovish MPC members and increases the odds for another 25 basis-point rate cut in December, which remains our baseline scenario,” Maja Goettig, chief economist at KBC Securities in Warsaw, said in a note after the data.

Poland’s expansion may ease to 1.5 percent next year, the least since 2002, with inflation slowing to 1.5 percent in two years, the lowest rate since 2007 and the bottom of the bank’s tolerance range, according to central bank new forecasts. The economy, the only one in the EU to avoid a recession in 2009, expanded 4.3 percent last year.

‘Radical Drop’

The central bank is poised to cut borrowing costs twice in coming months as the inflation rate heads toward a three-year low, policy maker Adam Glapinski said in an interview on Nov. 10. “Anything can happen if the slowdown triggers a radical drop in the inflation rate,” said Glapinski, indicating that the bank may consider a larger scale of monetary easing.

Deteriorating demand will push Polish inflation to 2.6 percent in 2013 from an estimated 3.8 percent this year, driven by rising administered prices, zloty depreciation and higher commodity prices, the European Commission said in its revised forecast on Nov. 7. Consumer prices will rise 2.4 percent in 2014 even as the economy experiences a “modest pick-up in economic activity,” the commission said.

The central bank should continue monetary easing without delay, policy maker Anna Zielinska-Glebocka was cited as saying in an interview published yesterday by PAP newswire. There’s room for cumulative rate cuts of as much as 1 percentage point, including 25 basis points this month, PAP quoted her as saying.

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