Poland Leaves Main Rate at Record Low to Gauge Recovery

Poland left borrowing costs at a record low for a second meeting as the central bank assesses a recovery in the European Union’s largest eastern economy.

The Narodowy Bank Polski kept the reference rate at 2.5 percent, matching the estimates of all 40 economists in a Bloomberg survey. Policy makers reiterated last month’s pledge to hold rates steady through year-end as the economy emerges from the slowest growth since 2009.

Poland cut borrowing costs by 225 basis points between November and July as the economic slowdown curbed tax revenue and prompted a 40 percent jump in this year’s planned budget deficit. While manufacturing expanded at the fastest pace in more than two years in September, inflation has lagged behind the central bank’s 2.5 percent goal for nine months.

“The economic picture we’re getting is quite mixed and this supports our expectation that the Polish economy will continue to recover, but very gradually,” Belka told a news conference today in Warsaw. “We’ve noticed that the high-frequency data for August were actually a bit weaker than in July. I’d say that the PMI figure, on the other hand, was amazingly strong.”

Weaker Zloty

The zloty has lost 3.1 percent against the euro this year, underperforming currencies in other eastern European nations including Romania and Hungary, data compiled by Bloomberg show. The zloty traded at 4.211 per euro at 5 p.m. in Warsaw, little changed from yesterday. The yield on the 10-year government bond fell 2 basis points to 4.4 percent from yesterday.

Asked in an interview in New York on Sept. 27 if he agrees with MPC members who say Polish rates should remain on hold until at least mid-2014, Belka said his view doesn’t differ significantly.

“We are keeping interest rates at historically low levels and we believe it won’t have negative impact, for at least some time, on inflation and financial stability,” he said.

Policy makers “didn’t speak at all about the possibility of extending the horizon for interest-rates moves or consider plans for the longer term,” Belka said today.

Gross domestic product rose 0.4 percent from the previous three months in the second quarter, accelerating after 0.2 percent growth in the first as the euro area, which buys 51 percent of Polish exports, emerged from a record-long recession.

‘Below Potential’

“While data from the real economy and leading indicators suggest the economy will accelerate in the coming quarters, growth will remain below potential and inflation will stay below target,” Cezary Chrapek, an economist at Citigroup Inc.’s Polish unit in Warsaw, said yesterday in a note to clients. “The central bank will have no reason to change rates until at least the middle of next year.”

Eastern European central banks are adopting different policies as their economies display varying degrees of recovery. Hungary cut interest rates to a record low last week and said it saw room for more easing, while Czech policy makers kept the benchmark rate at what they call a “technical zero” of 0.05 percent for a seventh meeting on Sept. 25.

Poland won’t start tightening policy until 2015, according to William Jackson, an emerging-markets economist at London-based Capital Economics Ltd.

“There is ample spare capacity in the economy, which means inflation is unlikely to rise substantially, even as growth picks up,” he said today in a note to clients.

Before it's here, it's on the Bloomberg Terminal.