Polish Bond Yields Fall as Minutes Show More Rate Cuts Possible

Yields on Polish government bonds fell for the first time in three days after minutes from the central bank’s March meeting spurred speculation of further interest rate cuts.

The yield on two-year papers dropped as low as 3.18 percent in Warsaw today after publication of minutes from the Monetary Policy Council’s last meeting, which cut rates by 50 basis points to a record 3.25 percent. The document showed some policy makers didn’t rule out further easing if economic activity is weaker or inflation lower than in central bank projections prepared for the meeting.

The bank’s forecasts assume Poland’s economic growth will slow to 1.3 percent this year, the weakest pace since 2001, while inflation stays near the lower end of the central bank’s tolerance range of 1.5 percent to 3.5 percent through 2015.

“The inflation data for February was already lower than expected and below the projection,” Agnieszka Decewicz, an economist at Bank Zachodni WBK SA in Warsaw, said by phone today. “Derivatives are clearly showing the council may cut rates further this year.”

Nine-month forward-rate agreements, used to speculate on interest-rate levels, were 40 basis points below the Warsaw interbank offered rate today, showing investors are betting on more than a quarter-point reduction in borrowing costs by the end of the year, according to data compiled by Bloomberg.

Consumer prices rose 1.3 percent in February from a year earlier, the smallest advance since October 2006 and less than January’s 1.7 percent increase.

The zloty depreciated for the fourth straight day to a one-month low as Cyprus and the European Union struggled to find a solution to the financial crisis in the Mediterranean island. The currency declined 0.3 percent to 4.1875 per euro at 5:39 p.m. in Warsaw, the most among emerging markets.

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