Boring Is Beautiful as Belka Seeks to Lull Market

Poland’s central bank Governor Marek Belka is keeping mum about the future path of interest rates, seeking to prevent traders from prematurely betting on higher borrowing costs and squeezing the nascent economic recovery.

“We’re definitely not going to let the markets get too used to anything, to playing games either for rate cuts or for increases,” Belka told reporters yesterday after policy makers kept the benchmark rate at a record low 2.5 percent for an eighth month. Forward-rate agreements, used to bet on borrowing costs, show traders predicting a quarter-point jump by October, data compiled by Bloomberg show. The extra yield on 10-year bonds over German bunds set a 14-month high last week.

Belka said Poland was in a “dream situation” of low inflation with accelerating growth, and that zloty weakness could be “temporary” even as this year’s emerging-market selloff pushed central banks from Turkey to South Africa to raise borrowing costs to prop up their currencies. The 10-member policy panel repeated that rates will probably stay unchanged until at least mid-year.

“In the second half it’s possible that a discussion will start, but I’m not so sure whether they’ll really hike,” Ronald Schneider, who helps manage 800 million euros ($1.1 billion) in assets at Raiffeisen Kapitalanlage GmbH in Vienna, said by phone yesterday. “They are not going to be moving rates quickly.”

‘In Control’

Poland’s economy will expand 2.9 percent this year, according to the median of 40 economists’ estimates in a Bloomberg survey, after growing 1.6 percent in 2013, the slowest pace in four years. Fourth-quarter growth may have reached 2.9 percent, Finance Minister Mateusz Szczurek said yesterday.

Policy makers can afford not to be rushed to give signals on rates as inflation remains under control, according to Belka. “We are in control and there is no need for changes,” he said.

Belka said the bank is preparing to review its “forward guidance” in March, after new inflation and growth forecasts shed light on the longer-term outlook.

The inflation rate, at 0.7 percent in December, has been below the central bank’s 2.5 percent target for 13 months and won’t breach that goal before the end of 2015, according to the Narodowy Bank Polski’s latest forecast from November.

‘Goldilocks Economy’

“The Monetary Policy Council is satisfied with the picture of a Goldilocks economy,” Rafal Benecki, chief economist at ING Groep NV’s unit in Warsaw, wrote in a note yesterday. “The overall environment calls for low inflation” as domestic demand is “subdued” and the labor market is recovering “only gradually” during the economic acceleration, he said.

There might be arguments in favor of not stifling growth by raising rates prematurely, William Jackson, an economist at London-based Capital Economics Ltd., said by e-mail.

“While growth is picking up, an expansion of 3 percent year-on-year or so is still not particularly strong by Polish standards,” Jackson said. “The recovery is also fragile and vulnerable to a relapse in growth in the euro zone.”

Factory output in the euro area, which buys more than half of Poland’s exports, expanded faster than initially estimated in January, according to a Feb. 3 report by London-based Markit Economics. An index of services output expanded at a slower pace than initially estimated as the currency bloc’s recovery remained fragile, the forecaster said yesterday.

Zloty Strength

The zloty weakened 0.5 percent against the euro in the past month, compared with a 2.1 percent decline by the Turkish lira and a 4.2 percent drop by the South African rand amid a developing-market rout triggered by the Federal Reserve’s move to withdraw unprecedented monetary stimulus. The Polish currency depreciated 0.1 percent to 4.1962 per euro at 3:09 p.m. in Warsaw.

The additional yield on Poland’s 10-year notes over bunds narrowed nine basis points, or 0.09 percentage point, to 283 after peaking at 308 on Jan. 31, according to data compiled by Bloomberg. The extra yield on Poland’s dollar bonds over Treasuries narrowed two basis points to 125, indexes compiled by JPMorgan Chase & Co. show.

The European Central Bank left its benchmark interest rate unchanged today at a record-low 0.25 percent, with its President Mario Draghi saying the Governing Council “will maintain an accommodative stance of monetary policy for as long as necessary” as price pressures in the euro area are expected to remain subdued over the medium term.

This should also help Poland maintain low borrowing costs, according to Richard Segal, chief of credit strategy at Jefferies International Ltd.

“There aren’t many central banks that can call their situation a dream,” Segal said by e-mail yesterday. “It looks like the NBP is ready to move in either direction, but it’s in no rush and Belka will be pleased if conditions stay as they are. I don’t see any reason for being hawkish.”

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