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Poland Pledges Steady Rates Till Mid-2014 on Slow Recovery

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Nov. 6 (Bloomberg) -- Poland’s central bank pledged to keep its main interest rate at a record low until at least the middle of next year due to the “moderate” pace of recovery in the European Union’s largest eastern economy.

The 10-member Monetary Policy Council left the reference rate at 2.5 percent for a third meeting today, matching forecasts from all 38 estimates in a Bloomberg survey of economists. The central bank also presented estimates from its November staff projections, which forecast inflation staying below the 2.5 percent target next year and into 2015.

Policy makers extended their earlier pledge to keep borrowing costs steady until the end of this year after cutting them by 2.25 percentage points between November and July. While the economy is emerging from its worst slowdown in at least at a decade, the growth will remain “below long-term averages,” the European Commission said in its autumn forecast this week.

“What prompted us to extend the guidance were the data, along with the projections,” Governor Marek Belka said at a news conference today. The forecasts “are a bit more optimistic but don’t suggest the appearance of any significant inflation pressures.”

The zloty pared its gain after his comments, trading at 4.1788 per euro as of 6:15 p.m. in Warsaw, 0.2 percent stronger from yesterday. The government’s two-year bond yield declined two basis points to 2.86 percent.

Regional Easing

Countries including Hungary and the Czech Republic have pledged to keep rates low to support their economies. The Budapest-based Magyar Nemzeti Bank reduced borrowing costs for a 15th month in October, while Czech rate setters have been debating for almost a year whether to pursue a weaker currency after cutting the benchmark interest rate to a “technical zero” of 0.05 percent.

The pledge to keep rates unchanged will be a “stabilizing factor” for the economy and financial markets, Belka said today. It’s “hard to imagine something happening in the next few months to change the Council’s view.”

The central bank raised its forecast for next year’s inflation to 1.1 percent to 2.2 percent from 0.4 percent to 2 percent in the July projection. It sees a 50 percent probability that consumer price growth will reach 1.1 percent to 2.6 percent in 2015. Inflation has stayed below the central bank’s target throughout 2013.

“We think the existence of significant slack in the economy means inflation will remain subdued for several years,” William Jackson, emerging-market economist at Capital Economics in London, said in an e-mailed note today. “We continue to expect the first rate hike in 2015.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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