Polish Bankers Cool Rate Wagers as Belka Says Doubts Cut

Polish central bank Governor Marek Belka moved to cool market expectations of an interest-rate cut while keeping his options open in case economic growth slows.

A cut “is neither probable, nor our baseline scenario” and the European Central Bank’s policy easing didn’t change that assessment, the PAP news service cited Belka as saying today. While Poland’s central bank is in a “somewhat different” situation after the ECB, the impact shouldn’t be exaggerated, Jerzy Hausner, another policy maker, said in Warsaw.

Both signaled the bank won’t extend its pledge to keep borrowing costs unchanged beyond September after leaving the benchmark at 2.5 percent for an 11th month last week.

Policy makers’ commitment to avoid tweaking policy is being challenged as the threat of deflation emerges and data suggests economic expansion may be receding from its fastest pace in two years. Growth would have to dip below 3 percent to justify easing, with low inflation insufficient grounds, Andrzej Bratkowski, another central banker, said in a June 9 interview.

Investors pared their expectations for a rate cut after today’s comments. Three-month forward-rate agreements traded 15 basis points below the Warsaw Interbank Offered Rate at 12:49 p.m. in Warsaw, versus 22 basis points yesterday.

‘Tight Spot’

“The council is in a tight spot,” Piotr Bielski, senior economist at Bank Zachodni WBK SA, said by phone from Warsaw. “They’re trying to phase out their forward guidance, but it’s difficult to do now as it’s immediately being interpreted as a signal for a rate cut.”

The European Union’s largest eastern economy expanded 3.4 percent from a year earlier in the first quarter and will grow 3.6 percent in 2014, the central bank predicts. Inflation slowed to a 10-month low of 0.3 percent in April and probably stayed below policy makers’ 2.5 percent goal for an 18th month in May, a Bloomberg survey of 28 economists showed. It will probably fall to “around zero or even lower” next month, Belka said.

Policy makers will consider “various scenarios” after they receive the latest inflation and growth projection at their meeting in July, according to Hausner, who said dropping forward guidance “can’t be ruled out” at that stage.

The policy has “lost its usefulness” in its current form, Belka was cited as saying.

“Inflation will take longer to return to target,” he said. “Hence our suggestion -- I repeat, with a very low probability -- that a rate cut can’t be ruled out.”

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