Poland Pledges Steady Rates Until at Least End of September

Poland’s central bank extended its pledge to keep the benchmark interest rate at a record low until at least the end of September from the middle of the year as inflation stays in check even as economic growth accelerates.

New staff projections showed a reduced forecast for price growth this year and next and a better outlook for growth. The Narodowy Bank Polski in Warsaw held its seven-day reference rate at 2.5 percent for an eighth month today, as predicted by all 30 economists in a Bloomberg survey.

“The projection is showing us quite a safe path of balanced growth within its horizon,” Governor Marek Belka told reporters at a news conference in Warsaw today. “It doesn’t seem we should be worried about any inflation pressures emerging in the coming quarters.”

The crisis in neighboring Ukraine “helped speed up” the decision to commit to a longer period of steady rates, he said. The decision was taken unanimously by all 10 members of the Monetary Policy Council, according to Belka.

The zloty pared gains to trade unchanged on the day at 4.1833 at 4:31 p.m. in Warsaw. Poland’s five-year government bonds rallied, sending yields 15 basis points lower to 3.54 percent. the lowest level since Dec. 18.

Economic growth accelerated for a third consecutive quarter to 2.7 percent from a year earlier in the October-December period as the recovery in the euro region, Poland’s biggest trading partner, bolstered domestic demand.

Inflation Undershoot

Inflation undershot the central bank’s target for a 14th month in January, when it stabilized at 0.7 percent from a year earlier.

The March staff projection showed a 50 percent probability inflation will be between 0.8 percent and 1.4 percent this year, compared with a range of 1.1 percent to 2.2 percent in the previous forecast in November.

Central bank staff also raised this year’s growth outlook to between 2.9 percent and 4.2 percent from between 2 percent and 3.9 percent, according to the statement.

The EU’s largest eastern economy will expand 2.9 percent this year, the third-fastest rate in the bloc behind Latvia and Lithuania, the European Commission forecast last week.

Poland’s manufacturing purchasing managers index surged to a three-year high of 55.9 in February, according to a Markit Economics survey for HSBC published on March 3. New orders rose the most since April 2004 and employment rose “sharply,” the London-based research company said on its website.

‘No Shovels’

Poland will probably enjoy record-low rates for most of this year as inflation remains subdued even with the pace of economic growth poised to almost double, central banker Andrzej Bratkowski said in a Feb. 14 interview.

Policy makers today considered extending their steady rates guidance till the end of the year before setting for a shorter period, Belka said.

“However, you shouldn’t expect that once the third quarter ends the Monetary Policy Council will pick up shovels and axes and get down to work,” he told reporters. “There is no such sentence in our statement.”

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