Poland May Leave Rates at Record Low to End-’14, Chojna Says

Poland’s central bank may keep its benchmark interest rate at a record low for as much as half a year longer than its official guidance as inflation risk remains subdued, policy maker Elzbieta Chojna-Duch said.

“It should be possible to keep rates unchanged even until the end of next year,” Chojna-Duch said in a Dec. 7 interview in Warsaw. “Short-term forecasts suggest inflation could be lower than our projection of 1.7 percent and there isn’t going to be any wage or price pressure with the economy growing at its current pace.”

The Narodowy Bank Polski last month pledged to hold its seven-day reference rate at 2.5 percent until the middle of 2014, reiterating that stance after policy makers left borrowing costs unchanged on Dec. 4 for a fifth month. It eased policy by 2.25 percentage points since November 2012 as the economy may grow this year at its slowest pace in a decade.

Another central banker, Anna Zielinska-Glebocka, also sees a “high probability” that rates will stay unchanged “longer” than the middle of next year. Even if faster economic growth brings slightly higher inflation, Zielinska-Glebocka would “prefer to enjoy the stronger economy rather than worry about price growth,” she said in an interview on Dec. 7.

Respond Faster

The zloty traded at 4.1870 per euro at 11:37 a.m.in Warsaw, little changed from Friday. The average yield on the government’s five-year bond dropped 15 basis points to 3.67 percent, the biggest one-day rally in three months.

Third-quarter data show the economy is responding faster to monetary stimulus than policy makers had anticipated, even though they began cutting rates a year later than the European Central Bank. The growth of the European Union’s largest eastern economy accelerated to 1.9 percent in the third quarter from a year earlier, compared with 0.8 percent in April-June.

Expansion will exceed the central bank’s forecast of 2.1 percent in the fourth quarter and quicken to 3.5 percent in January-March 2014, boosted by EU funds and fiscal room supplied by a pension overhaul, Chojna-Duch said.

“It’s becoming quite realistic that next year’s growth will exceed 3 percent, though the final figure depends also on external conditions,” Chojna-Duch said.

Confidence Boost

Domestic demand grew half a percentage point in the third quarter, with consumer spending gaining 1 percent and investments rising 0.6 percent, according to the Central Statistical Office. The data show that record-low borrowing costs have yet to boost consumer confidence and revive private investments, Zielinska-Glebocka said.

“Growth has been driven by net exports, but now the key will be boosting private investment and consumer spending to ensure we have a sustained recovery in domestic demand,” Zielinska-Glebocka said.

In her opinion, Polish growth will be helped by a reviving German economy, which buys more than a quarter of Polish exports, she said. The Bundesbank on Dec. 6 raised its 2014 growth forecast for Europe’s largest economy to 1.7 percent from 1.5 percent.

“The upward revision is very positive news because better conditions in Germany could give an extra impetus to growth in Poland,” Zielinska-Glebocka said.

Both policy makers agree support for steady rates next year is provided by the central bank’s inflation projections, which assume consumer-price growth will lag behind policy makers’ 2.5 percent target through 2015.

Chojna-Duch was the most outspoken supporter of early interest-rate cuts and voted against the Polish central bank’s quarter-point increase in May 2012, the only tightening step in the EU last year.

“Stable borrowing costs are extremely important to companies and the entire economy,” she said. “We shouldn’t be changing that decision.’

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