Bratkowski Seeks Half-Point Polish Rate Cut on Weak GDP

Bratkowski Seeks Half-Point Polish Rate Cut on Recovery Delay
A pedestrian passes the headquarters of the National Bank of Poland in Warsaw. Photographer: Bartek Sadowski/Bloomerg

May 23 (Bloomberg) -- Polish central banker Andrzej Bratkowski said he’ll seek a half-point cut in interest rates next month as prospects for a quick economic recovery fade.

The reference rate’s optimal level for the next several quarters is from “2 percent to 2.5 percent,” according to Bratkowski, one of 10 rate-setters on the central bank’s Monetary Policy Council. While the economy will probably bottom out in the second quarter, the recovery will be slow, he said yesterday in an interview in Warsaw.

Policy makers have cut interest rates by 175 basis points since November to a record-low 3 percent as the European Union’s largest eastern economy expanded at the slowest pace in four years in the first quarter. The International Monetary Fund last week urged policy makers to lower borrowing costs further “without delay” as the euro area’s longest-ever recession curbs demand for Polish exports.

“Another 50 basis-point rate cut is completely justified and I expect that will be my position at the June policy meeting,” Bratkowski said in Warsaw. “After that, we can be more cautious about whether to do another two smaller cuts. If nothing dramatic happens, we can afford to take smaller steps.”

Rate Bets

Polish derivatives investors are betting on 32 basis points of cuts through August, according to the gap between three-month forward-rate agreements and the Warsaw Interbank Offered Rate. The zloty, this year’s fifth-worst performer against the euro among emerging-market currencies tracked by Bloomberg with a 2.9 percent decline, extended its drop after Bratkowski’s comments, falling 0.5 percent to 4.2043, the lowest since Jan. 31.

Bratkowski has been among the most vocal supporters of monetary easing among Poland’s central bankers. He was the first to seek a half-point cut last July, two months after the panel voted to increase borrowing costs, according to voting records on the central bank’s website.

While the economy is poised to expand at its slowest pace in more than a decade this year and the inflation rate is the lowest in seven years, policy makers are split about the need for further monetary easing. Jan Winiecki said this week that rate reductions will be ineffective in boosting investment. Jerzy Hausner told TVN CNBC on May 20 that he doesn’t see large scope for cuts.

Motion Rejected

Policy makers rejected a motion to reduce borrowing costs by 50 basis points last month before settling for a quarter-point cut, according to minutes from May 8 meeting released today by the central bank.

Some central bankers said further decreases could be justified in the coming months if inflation continues to undershoot the 2.5 percent target, while some wanted to see the next inflation projection in July to gauge the need for additional easing, the minutes showed.

There are “some signs” the economic slowdown has reached the bottom as exports are no longer decelerating and slow inflation should encourage consumer spending, according to Bratkowski. Still, there’s “no way” the recovery will be speedy given the scope of the debt crisis in the euro area, which buys 52 percent of Polish exports, he said.

“The second quarter will be the weakest,” Bratkowski said. “After that, annualized growth should improve because the base effect of year-earlier growth will be in our favor.”

Employment Drop

Polish industry grew 2.7 percent from a year earlier in April, less than economists forecast, while employment at companies with more than nine workers declined 1 percent. Retail-sales data for last month are due to be published tomorrow, with economists predicting a 1 percent annual decline.

Inflation probably won’t experience a “quick up-tick” after slowing to 0.8 percent from a year earlier in April, Bratkowski said. The central bank is targeting medium-term consumer-price growth of 2.5 percent with a tolerance range of 1 percentage point around that goal.

The inflation rate may dip “below zero” for one or two months if the EU economy remains weak and food and energy prices stay low, according to Bratkowski.

“That’s no tragedy, because it’s nonsense to think a country like Poland can get sucked into a deflationary spiral,” he said. “That shouldn’t happen.”

Gross domestic product advanced 0.4 percent from a year earlier in the first quarter, according to a flash estimate released last week by the statistics office. To kick start the economy, the central bank should use traditional monetary-policy tools to support domestic demand because net exports are the only growth engine at present, according to Bratkowski.

“The situation in Poland isn’t so dire that we need to jettison conventional policy and adopt an anti-inflation orthodoxy that conflicts with direct inflation targeting,” he said. “If that doesn’t work, then we can consider other means, although I personally don’t see any instruments that could boost lending.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at

To contact the editor responsible for this story: Balazs Penz at