Belka Defers to Next Polish Rate Panel Amid Bets for More Easing

  • Preferences of incoming MPC members to define future policy
  • Economic situation doesn't warrant changing rates for now

Polish central bank Governor Marek Belka said there’s no need to reduce borrowing costs for now, deferring questions on the future of monetary policy to the rate-setting panel set to be appointed next year.

The National Bank of Poland left the seven-day reference rate at 1.5 percent on Wednesday for a seventh meeting, matching the prediction of all 34 economists surveyed by Bloomberg. While staff projections published the same day showed slower growth and inflation than four months ago, the governor told a news conference that the adjustments were “minimal.”

It was the penultimate meeting of this 10-member Monetary Policy Council. Eight will be replaced with new central bankers picked by the parliament and president in January or February, while Belka’s term ends in June. The Law & Justice party, which won last month’s general election, is seeking candidates who support monetary easing to accelerate economic growth to at least 5 percent.

“The economy is growing at quite a stable pace, and the situation next year shouldn’t be worse than this year,” Belka said. “We’ll see what the situation will be like in the coming months, what the preferences of the next council will be. We’ll then look at monetary policy and whether there will be reasons to change it.”

Traders’ Bets

Forward-rate agreements, derivatives used to bet on interest rate levels, show expectations for easing surged to more than a quarter point over the next six months following Law & Justice’s victory on Oct. 25. The zloty stayed stronger after Belka’s comments, gaining 0.5 percent to a two-week high of 4.2310 against the euro.

Poland’s economy has expanded by at least 3 percent for the past seven quarters, and the central bank sees growth staying steady through 2016. Law & Justice says the pace is insufficient to significantly reduce unemployment and boost wages. The party aims to accelerate growth through more social spending as well as central bank “cooperation” in boosting lending and supporting investment.

The current council has found a “golden mean” with interest rates that prevents speculative bubbles on one side and excessive inflows of capital into Polish government bonds on the other, Belka said. With fiscal loosening on the cards as Law & Justice takes power, it will be up to the next MPC to ensure a proper “policy mix,” he said.

While consumer prices have fallen in annual terms for 16 months, prices should start growing again in December, Belka said. The new staff projection showed there was a 50 percent probability that consumer prices will decline 0.8 percent to 0.9 percent this year. The 2.5 percent inflation target may be reached in 2017 at the earliest.

“For the new council, which will probably be more dovish in its views, a low level of inflation will probably be an argument for cutting interest rates further,” said Monika Kurtek, chief economist at Bank Pocztowy SA in Warsaw. “While Belka again signaled that the current panel won’t change rates, he was less radical when expressing his opinion about the next council’s decisions.”

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