• Main rate steady at record low 1.5%, as predicted in survey
  • Replacement of 8 policy makers sets stage for cuts in 2016

Poland kept interest rates at a record low for an eighth meeting before a leadership transition at the central bank’s policy board starting next month puts monetary easing back on the agenda.

The Monetary Policy Council left the seven-day reference rate at 1.5 percent on Wednesday, matching the predictions of all 32 economists surveyed by Bloomberg. Governor Marek Belka is set to hold a news conference at 4 p.m. in Warsaw to explain the decision.

The changing of the guard promises to reshape monetary policy in Poland as two members of the 10-person panel prepare to leave before the next meeting on Jan. 13-14. Ruling Law & Justice said it’s seeking candidates who’ll support rate cuts and wants the central bank to help spur economic growth with a program of cheap loans. Parliament and the presidency, both controlled by the party or its allies, will appoint eight new policy makers for six-year terms by late February. Derivative traders are betting on rate cuts.

“The new Monetary Policy Council next year may be more bold,” said Piotr Kalisz, an economist at Citigroup Inc. in Warsaw. “Rate cuts appear probable and our view is that you can’t rule out some non-standard measures from the central bank.”

Forward-rate agreements, derivatives used to bet on interest rate moves, show traders see at least a quarter-point of easing over the next six months and some possibility that a cut may happen by March.

Easing Cycle

The zloty gained 0.2 percent to 4.2740 against the euro at 12:51 p.m. on Wednesday, paring its three-month loss to 0.9 percent, still the worst performance among 24 emerging-market currencies tracked by Bloomberg. Bonds rose, pushing the yield on the country’s two-year zloty government note down one basis point to 1.59 percent, two basis points above a seven-month low reached Nov. 26.

The outgoing council members last lowered their benchmark by half a percentage point in March, when they also announced the end to a three-year easing cycle, arguing deflation posed no threat to economic growth.

Belka reiterated that stance in a newspaper interview last week, saying that another cut was “unnecessary and will be wrong,” although he wouldn’t consider it a “catastrophe.” The pace of consumer-price declines eased to 0.5 percent in November from a year earlier and Belka predicts a 17-month stretch of deflation may end this month.

The governor also sees no need for a low-interest loan program to spur investment because Polish banks are awash with cash. Belka’s six-year term ends in June.

‘Firm’ Expansion

The drumbeat of calls for additional easing has intensified since Law & Justice formed the government two weeks ago. Development Minister Mateusz Morawiecki said he saw room for a quarter-point reduction while Finance Minister Pawel Szalamacha predicted a “small” cut could happen in January or February, as deflation trends persist.

While the outlook for inflation is improving, the central bank’s staff projection released last month showed price growth will only reach the lower end of the council’s 1.5 percent to 3.5 percent target range in 2017. The economy will continue to expand faster than 3 percent after gross domestic product grew 3.5 percent in the third quarter, according to the forecasts.

“Whereas the disappointing CPI numbers supply a minority dovish camp with arguments for additional easing, the firm pace of GDP expansion ensures the NBP’s dominant view that further easing is not required,” Jose Cerveira, an economist at JPMorganChase & Co. in London, said in an e-mailed note. Rate cuts are “possible only from March after the newly Law & Justice-nominated members are a majority in the MPC.”

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