Polish Yields Fall Third Week to Record Lows on Rate-Cut Bets

Poland’s 10-year bond yields fell for a third week, the longest streak of declines since December, as economic data and comments from policy makers fueled bets of more cuts to record-low interest rates.

Yields on the government’s 10-year debt slid three basis points, or 0.03 percentage point, to a record 3.43 percent at 4:11 p.m. in Warsaw, extending this month’s slump to 50 basis points, the steepest decline since November.

Annual inflation easing to a seven-year low of 1 percent, wage growth slipping to 1.6 percent and output shrinking at an annual rate of 2.9 percent in March “have strengthened the momentum” in favor of further monetary easing, Pasquale Diana, an economist at Morgan Stanley, wrote in a note today.

The central bank left its benchmark seven-day rate unchanged at 3.25 percent for the first time in five months on April 10. Policy makers adopted a “wait-and-see” approach after slashing the key reference rate by a cumulative 150 basis points between November and March to a record.

The rates council should cut borrowing costs by 50 basis points next month if March macroeconomic data remains “weak,” policy maker Andrzej Bratkowski was cited as saying by Reuters on April 17.

Poland’s nine-month forward rate agreements, derivatives used to speculate on interest rate levels, traded 60 basis points below the Warsaw Interbank Offered Rate, showing a scope for more than two quarter-point cuts by year-end.

“Cuts are still in the pipeline on the basis of weak macroeconomic conditions, persisting low interest rates environment in Europe and low inflation,” BRE Bank SA economists led by Ernest Pytlarczyk wrote in a note today.

The zloty gained 0.3 percent to 4.1013 against the euro, appreciating for a second day and paring this week’s losses to less than 0.1 percent.

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