• Next monetary panel will focus more on growth, Borowski says
  • Panel to cut benchmark by 50bps in March if expansion slows

Investors should expect Poland’s monetary policy to begin a shift toward easing following next month’s general election, according to Jakub Borowski.

The chief economist at Credit Agricole SA’s unit in Warsaw is the sole forecaster among 27 surveyed by Bloomberg who expects Poland’s central bank to cut its benchmark next year, seeing a 50 basis point reduction in March. Forward-rate agreements, derivatives used to bet on borrowing costs, also show a greater probability of a cut than an increase by the end of 2016.

Borowski expects Poland’s economic expansion to moderate amid a decline in investment and a sluggish recovery in the euro area, the country’s main export market. Amid this slowdown, the Law & Justice party, which has called for a “more active” central bank and is leading opinion polls in the run up to the Oct. 25 ballot, will probably appoint economists more focused on propping up growth than the outgoing Monetary Policy Council (MPC), where the majority of members’ terms end by February 2016, he told Bloomberg.

“You have to take into account the political change and the implications it brings for monetary policy,” Borowski said by phone on Sept. 18. “A strong slowdown in growth will incline the new policy makers to cut rates by 50 basis points, maybe even at their first meeting in March.”

Four-Week Low

The next parliament will appoint six new MPC members for six-year terms, while President Andrzej Duda, a former Law & Justice lawmaker, will appoint a further two as well as pick Governor Marek Belka’s successor when his term ends next June.

The 10-member panel cut the benchmark to 1.5 percent in March, resisting more easing even as price growth has stayed below the central bank’s 2.5 percent target since December 2012. There isn’t any “serious risk” to the central bank’s forecast for 3.6 percent economic growth this year and deflation that began in July 2014 is set to run its course in November, Belka said Sept. 2.

Poland will raise interest rates by a quarter point next year, according to the median forecast in the Bloomberg survey of analysts. Six-month forward-rate agreements dropped 16 basis points below the three-month Warsaw Interbank Offered Rate on Monday, showing the biggest bets for rate cuts since April.

Borowski, who is also on the council of economic advisers to Poland’s prime minister, expects yields on Poland’s local-currency government bonds to rise in the next few months, driven by a likely increase in U.S. interest rates next month. Bonds will return to gains afterwards, supported by a reduction in borrowing costs in Poland and a likely extension of the European Central Bank’s monetary stimulus. The yield on Poland’s 10-year zloty bond fell one basis point to a four-week low of 2.88 percent at 1:21 p.m. in Warsaw.

‘No Drama’

The zloty will weaken to 4.25 per euro by the end of 2015 from a 1-month high of 4.1818 set on Monday amid increased political risk. The currency will appreciate toward 4.10 by the end of 2016 as investors grow accustomed to politics and the ECB’s program drives flows into Polish assets, he said.

Poland’s economy is on track to expand 3.4 percent this year, with growth slowing in 2016 as companies reduce investment outlays, according to Borowski. The downturn in China could be deeper than currently predicted, he said.

“There won’t be any drama, growth at 2.5 percent is still decent, but it will definitely be slower than in 2015,” Borowski said about next year’s forecast.

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