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Poland Needs Rate Cuts to Avoid Stagnation: Bratkowski

Poland’s central bank should cut its benchmark interest rate by another percentage point in the coming months to keep the European Union’s largest eastern economy from stagnating, policy maker Andrzej Bratkowski said.

The Narodowy Bank Polski has reduced the main rate by a combined 75 basis points to 4 percent since November, a cycle that began one year after the European Central Bank started lowering borrowing costs and five months after peers in the Czech Republic. After the latest rate cut Jan. 9, Governor Marek Belka said that a “certain round” of monetary-policy easing may be coming to an end.

“Without further easing to 3 percent, the economy will stagnate at zero or 0.5 percent growth,” Bratkowski, a member of the central bank’s rate-setting Monetary Policy Council, said in an interview in Warsaw yesterday. “We’re late with cuts already, so there’s no time for any pause or for awaiting the results of previous reductions.”

Even with continued rate cuts, economic growth will slow to 1.5 percent this year, the least since 2002, “without any inflationary impulses,” he said. Price growth will decelerate to between 1.7 percent and 1.8 percent this month, the lowest since August 2007, and to 1 percent later this year, Bratkowski said.

The zloty traded unchanged at 4.169 per euro at 2:20 p.m. in Warsaw, after weakening 2 percent since the start of the year. The yield on the government’s 10-year bond was down one basis point to 3.94 percent.

Rate Increase

Poland’s central bank, seeking to tame inflation exceeding its 2.5 percent target, was the only one in the 27-nation EU to raise rates last year. Price growth slowed to 2.4 percent last month, below the goal for the first time in 27 months.

Industrial production declined 10.6 percent in December from a year earlier, the biggest plunge in almost four years. Bratkowski said he hoped it didn’t mark “the start of a new trend showing the economy is getting even worse.”

The output report showed that the Polish economy “took one step toward a recession,” making a rate cut in February “a done deal,” Ernest Pytlarczyk, chief economist at Warsaw-based BRE Bank, said in an e-mailed note.

Inflation Projection

MPC member Adam Glapinski was cited by PAP newswire yesterday as saying that the easing cycle should end after a cut in February. Another council member, Jerzy Hausner, was also cited by PAP as saying a rate reduction will come either in February or March and that the next inflation projection, due in March, “may support future cuts.”

Should the economy’s performance in the first quarter this year prove “as bad as December, a cut by another 100 basis points” to 2 percent “may be needed,” Bratkowski said, adding that he doesn’t expect such a scenario.

That’s the lowest rate Bratkowski has called for since the Polish economy began to slow in the first quarter of last year as exports to the crisis-hit euro area declined. He and Elzbieta Chojna-Duch were the only members of the 10-person MPC to object to the rate increase in May. Since then, he has called for reductions deeper than a quarter point each.

“Only Bratkowski and Chojna seem to support rates going to 3 percent,” Jaroslaw Janecki, a Warsaw-based economist at Societe Generale, said by phone. “A 3.5 percent rate is the most likely scenario at the moment.”

Gross domestic product grew a bit less than 1 percent in the fourth quarter from a year earlier, down from 1.4 percent in the previous three months, Bratkowski said. GDP will expand just below 1 percent in the first quarter of 2013 and start rising “slowly and slightly” through the year on a recovery in the 17-nation euro area, which buys more than half of the nation’s exports, Bratkowski estimated.

“For now, I don’t see the risk of a recession,” he said.

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