Poland Holds Rates at Record Low as Curtain Falls on Belka’s Era

  • Benchmark left unchanged for 15th month, in line with survey
  • Keeping financial stability eclipsing rates for policy makers

Poland’s central bank left borrowing costs unchanged for a 15th month at the last meeting led by Marek Belka, as the outgoing governor clears the decks for a successor he says will stick to the policy of stable interest rates.

The 10-member Monetary Policy Council on Wednesday left the seven-day reference rate at a record-low 1.5 percent, matching the predictions of all 33 economists surveyed by Bloomberg. Belka, accompanied by two other central bankers, will comment on the decision at a 4 p.m. news conference in Warsaw.

Capping a transition that saw the replacement of all but one policy maker this year, Adam Glapinski takes over with the economy growing at its slowest since 2013 amid a record run of deflation and investors on alert over heightening political risks in Poland. The newcomers have so far endorsed a rate pause that’s lasted since March 2015, arguing the central bank needs to leave room to respond to potential shocks.

“As a conservative, Glapinski shouldn’t have problems with keeping the same course,” Belka said in an interview last week. “The question is how the economic reality will change. For the time being though, I see no reasons for the MPC to do any flip-flop.”

‘Reached Bottom’

Both Belka and the incoming governor have questioned the potential of using monetary easing to boost the economy, with Glapinski saying last month that central bank borrowing costs “may have reached bottom.” The focus in increasingly shifting to preserving financial stability, something Belka said “will definitely be playing a bigger role than interest rates,” especially as Poland moves ahead with plans to convert $36 billion in Swiss franc-denominated mortgages into zloty.

The zloty traded 0.1 percent stronger at 4.3466 against the euro after the rate decision. The Polish currency is the second-worst performer this year among its peers in developing Europe, according to data compiled by Bloomberg.

Gross domestic product expanded 3 percent in the first three months from a year earlier as smaller inflows of European Union funds hampered investment. The economy is getting a lift from stronger consumer spending, which is set to accelerate in the coming months as the new government boosts social transfers via benefits for families.

A gauge tracking Poland’s manufacturing industry showed output prices gaining in May for the first time in nine months, while annual deflation moderated to 1 percent.

“The deepest declines in prices are probably behind us and coming months will show deflation petering away,” said Adam Antoniak, a senior economist at Bank Pekao SA. “In such an environment, and in the face of improving conditions on the labor market, the MPC will be inclined to keep rates on hold at until the end of 2016.”

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