Polish Yields Decline, Zloty Weakens 4th Day as Inflation Eases

Polish bond yields declined and the zloty weakened for a fourth day after the inflation rate fell below the central bank’s target for the first time in more than two years, stoking speculation of more interest-rate cuts.

The yield on two-year notes fell two basis points, or 0.02 percentage point, to 3.39 percent at 3:40 p.m. in Warsaw. The zloty depreciated less than 0.1 percent to 4.1168 per euro.

The inflation rate dropped to 2.4 percent last month, the lowest since August 2010 and below the central bank’s 2.5 percent target, the statistics office said today. While policy makers cut borrowing costs for third time in as many months last week in a bid to spur Poland’s slowing economy, Governor Marek Belka said the current “round” of monetary easing was coming to an end.

“The significant fall in inflation to below the target in December supports the dovish Monetary Policy Council members,” said Maja Goettig, chief economist for central and eastern Europe at KBC Securities NV in Warsaw. “The odds of another 25 basis-point cut already in February should increase” if the inflation data is accompanied by a decline in December industrial production and weakness in employment, she said.

Polish industrial output probably slumped 6.5 percent from a year earlier last month, according to a median forecast in a Bloomberg survey of 28 economists. The statistics office is scheduled to release the data on Jan. 18.

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