Glapinski Sees Low Probability of Polish Rate Cut in July

There’s a “low probability” Poland’s central bank will reduce interest rates next month as borrowing costs approach a level that risks triggering outflows from Polish bonds, policy maker Adam Glapinski said.

“Further rate cuts wouldn’t give any extra impetus to the economy,” Glapinski said in an interview in Warsaw on June 8. “They’d only increase the risk of portfolio capital outflows, which always occur when rates are set too low or reach an unprecedented low, as is the case in Poland.”

The Narodowy Bank Polski in Warsaw lowered its benchmark rate by a quarter-point to a record 2.75 percent on June 5. The central bank has reduced borrowing costs by 2 percent since November as it strives to help stem the economy’s worst slowdown in four years.

Two days after the rate cut, the central bank intervened on the currency market for the first time since December 2011, selling euros after the zloty slumped to a one-year low against the single currency on June 6. The transactions pushed the zloty to 4.2405 per euro late June 7 in Warsaw, up 1.7 percent, the currency’s biggest gain since Aug. 3.

“This absolutely isn’t an attempt to fight the trend,” central bank Governor Marek Belka was quoted as saying by the PAP news service in a June 7 interview.

The zloty’s current exchange rate is “of marginal interest” to policy makers with inflation at 0.8 percent in April, the slowest since 2006, Glapinski said.

‘Too Low’

The zloty traded at 4.2586 per euro at 3:17 pm in Warsaw, a

0.4 percent decline from Friday. It has lost 2.7 percent in the past month, the seventh-best performance among more than 20 emerging-market currencies tracked by Bloomberg. The yield on the government’s dollar bond maturing in 2023 rose five basis points to 3.67 percent, the highest since it was sold in September 2012.

“The inflation rate is too low for us to worry about the impact of recent zloty weakness on future price growth,” he said. “Central bank interventions, in keeping with our policy guidelines, don’t aim to target any zloty level but to prevent strong fluctuations of the currency.”

The easing cycle may be close to ending as “we are very near a rate level that the Monetary Policy Council would regard as appropriate,” Belka told reporters after the June 5 rate cut. He said rate setters will give more “decisive” guidance on their future policy direction in July, after receiving new projections for inflation and economic growth from the central bank’s research institute.

‘I Oppose’

For Glapinski, the easing cycle is already concluded and recent data suggest the July forecasts “won’t change the picture and won’t have any real significance for our decision.”

“I oppose any further interest-rate cuts,” Glapinski said. “I took that position in May, because I believed borrowing costs had already been lowered sufficiently to stimulate the economy; we don’t need to do more. At the time, however, I did say publicly that a June rate cut was probable. Now, without changing my own view, I think there’s a low probability of a rate cut in July.”

Glapinski’s view “is clear and also suggesting that the Monetary Policy Council is moving his way,” Gabor Ambrus, an economist at 4Cast Ltd. in London, wrote in an e-mail today.

‘Uncharted Territory’

Glapinski backed three of Poland’s five consecutive rate cuts from November to March, according to voting tallies published by the central bank. Minutes for the May and June rate meetings haven’t been published yet. Belka has the tie-breaking vote on the 10-member Monetary Policy Council and used it to reduce rates by 50 basis points in March, with Glapinski among those voting against.

“We’re entering uncharted territory in terms of how the market and short-term investors react,” with the main rate at

2.75 percent, Glapinski said. “My personal view is that for a medium-sized, open economy like Poland’s, the optimal interest rate should be about 3 percent to 3.25 percent, assuming there’s no risk of inflation exceeding the target.”

Poland’s economy is set to expand this year by 1.5 percent, the slowest pace since 2002, as the 17-nation euro region remains stuck in a record-long recession, according to Polish Finance Ministry forecasts. Poland sells more than half its exports to the euro area and a quarter to Germany, its biggest trading partner.

Germany ‘Key’

“For me, the key is forecasting German economic growth,” Glapinski said. “If we don’t see a recovery there, then low rates in Poland won’t help. The situation is making it increasingly obvious that cheap money isn’t a cure-all for what’s ailing the economy.”

Instead of “experimenting” with record-low rates, Poland should be looking for other ways to stimulate the economy, especially through public investments, Glapinski said.

Anna Zielinska-Glebocka, another member of the rate-setting council, told the state-run PAP news service that policy makers may be inclined to end the easing cycle in July.

“It’s hard to say whether the cut may be 25 points or 50 points,” PAP cited Zielinska-Glebocka as saying today. “It’ll probably be 25 points, but we’ll see. A lot depends on the inflation projection.”

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