Traders Pare Rate-Cut Bets as Growth Augurs Polish Deflation End

  • Rate wagers fall after growth, inflation topped estimates
  • Market `overestimates' rate-cut bets: Union Investment TFI

A surprise pickup in Poland’s economic growth is pushing traders to start scaling back bets for interest-rate cuts by newly appointed policy makers as the country’s deflation looks poised to end.

Wagers fell from a nine-month high after data on Friday showed gross domestic product grew 3.4 percent in the third quarter. The expansion, along with projections that consumer prices will rise next year, is giving Poland’s new government less of a reason to follow through with plans to push for lower interest rates.

“The market overestimates rate-cut expectations,” Krzysztof Izdebski, who helps oversee the equivalent of $2.5 billion as a money manager at Warsaw-based Union Investment TFI SA, said on Friday. “The new rate-setters will be more dovish, but I’m not sure they will cut rates instantly. Inflation could pick up in the first quarter.”

Izdebski said he turned bearish on 10-year zloty bonds last week.

Investors had boosted bets for policy easing on expectations the Law & Justice party, which won parliamentary elections last month, will appoint new central bankers who favor lower rates to spur economic growth to 5 percent. Fifteen-month forward-rate agreements fell 34 basis points below the Warsaw Interbank Offered Rate on Friday from 38 basis points reached before the release of Poland’s economic growth data. They were little changed at 34 basis points by 4:39 p.m. in Warsaw.

The next rates panel should consider “normalizing” interest rates, Andrzej Rzonca, current member of the central bank’s rates panel, told portal in an interview. “If we manage to avoid outside shocks then without the adjustment in monetary policy our economy may lose its almost perfect balance, in which it is currently in, as growth rate will become too fast compared with fundamentals.”

The central bank has kept its benchmark rate at a record-low 1.5 percent since March. 


While consumer prices fell for the 16th month in October, the pace of decline has slowed and economists surveyed by Bloomberg predict a return to inflation of 1 percent in the first quarter. Deflation slowed to 0.7 percent last month, down from an initial estimate of 0.8 percent.

Eight members of the central bank’s 10-person Monetary Policy Council will be replaced by the parliament and president in January or February, while the bank’s Governor Marek Belka’s term ends in June.

“The economy isn’t calling out for looser monetary policy, it’s pretty strong,” William Jackson, a senior emerging-market economist at Capital Economic in London, said by phone on Friday. “The rate council could be reluctant to cut rates in the first quarter.”

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