Poland Should Continue Rate Cuts Further, Zielinska Says

Poland’s central bank, which last week lowered borrowing costs for a fourth month, should keep cutting interest rates to boost economic growth, monetary-policy maker Anna Zielinska-Glebocka said.

“Given the weak economic data and the lack of any inflationary impulses, the 100 basis-point reduction we’ve done so far isn’t enough,” Zielinska-Glebocka, a member of central bank’s Monetary Policy Council, said in a Feb. 9 phone interview. “Deeper cuts may be necessary.”

The Warsaw-based Narodowy Bank Polski cut its benchmark seven-day reference rate a quarter-point to 3.75 percent on Feb. 6. Governor Marek Belka told a news conference afterwards that the bank is maintaining its informal easing bias, meaning another cut or a decision to keep rates unchanged are “equally probable.” That softened his prediction in January that a pause in the easing cycle would follow any rate cut this month.

“Once we decided on a slow and gradual approach, there’s no point in talking about a pause in the cycle,” Zielinska-Glebocka said. “We need to get rate cuts done in a concentrated period of time before shifting to a wait-and-see mode, especially given expectations the economy could begin recovering in the second half of the year.”

Household Consumption

Poland’s economy, the only one in the EU to avoid a recession in 2009, grew 2 percent last year, less than half the pace in 2011. Individual consumption, which makes up 62 percent of gross domestic product, added 0.5 percent to economic output in 2012, the least since comparable data was introduced almost two decades ago.

The zloty, which has weakened 2 percent to the euro since the start of the year, traded at 4.1625 at 5:15 p.m. in Warsaw, down 0.3 percent from Feb. 8. The government’s 10-year bond yield rose 5 basis points to 4.04 percent.

Zielinska’s statement on the need to concentrate rate cuts before an economic rebound “will be very important to the market and we may expect that investors will again start to price in deeper interest-rate cuts,” Jaroslaw Janecki, a Warsaw-based economist at Societe Generale, said by phone.

Growth Slows

Derivatives traders predict two more quarter-point cuts by August, based on the spread between 6-month forward-rate agreements and the Warsaw Interbank Offered Rate, according to data compiled by Bloomberg.

Growth slowed to less than 1 percent from a year earlier in the fourth quarter and will hold at that level in the first quarter, according to Zielinska. December retail sales dropped the most since 2005 and the Labor Ministry estimated the unemployment rate at 14.2 in January, the highest in six years.

“I’m assuming we’ll get the worst of the downturn in these two quarters, which will form the bottom of the cycle,” Zielinska said. “After that, there’ll be a slow recovery in the months following the first quarter.”

Poland’s economic growth will slow to 1.5 percent this year, the weakest since 2002, based on the bank’s inflation and GDP forecast published in November. The bank’s new projection, due in March, will be “crucial” for the next rate decision, Elzbieta Chojna-Duch, also a member of the council, told TVN CNBC Biznes today.

Chojna-Duch, who supported deeper cuts in the past, warned the bank should be “cautious” with further rate decreases amid the possibility of a euro-area recovery in the second half of 2013. She refused to say whether she would vote for lowering borrowing costs in March.

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