Rate cuts planned for Poland
Poland’s central bank is likely to cut interest rates twice over coming months. The move comes as the rate of inflation falls towards a three year low. “Two quarter-point cuts are most likely,” said the bank’s Monetary Policy Council member Glapinski.
At the start of November, the Narodowy Bank Polski cut the benchmark interest rate for the first time since 2009. The bank’s new inflation and GDP projection showed that the country’s economic expansion, blunted by the euro area debt crisis, will slacken off to 1.5 per cent next year, the lowest rate since 2002, down from 4.3 per cent in 2011.
Inflation is expected to slow-down to 2.5 per cent by mid-2013 in response to a fall in consumption and investment. This is the first time it will have been in line with the central bank’s target since September 2012. According to the bank’s forecast, the rate will drop to 1.5 per cent in two years, the lowest rate since 2007, which is the lowest the bank can tolerate.
Monetary easing
Glapinski hinted that the bank may consider a larger scale monetary easing, saying: “Anything can happen if the slowdown triggers a radical drop in the inflation rate.” He advised that policy makers closely examine public statements to work out when the easing cycle should end.
Three-month forward-rate agreements were 60 basis points below the three-month Warsaw Interbank Offered Rate on November 9, implying half a point in reductions by the end of January.
In August, they indicated expectations for a quarter-point cut within three months, data compiled by Bloomberg showed. Twelve-month FRAs were at 101 basis points below the three-month Wibor, signalling bets of four quarter-point reductions.
More cuts
“Decisive, deeper rate cuts in the coming months are in order,” said central banker, Elzbieta Chojna-Duch in an interview with CNBC.
In May, The Narodowy Bank Polski delivered the EU’s only rate increase of 2012, against the European Central Bank, which held borrowing costs. The Polish bank raised the benchmark to a three-year 4.75 per cent high over concerns about a worsening economic outlook. Poland’s inflation rate, the EU’s second-highest, was 3.8 per cent in September.
“Inflation is stubbornly high,” said Glapinksy, who is skeptical that the inflation rate will return to central bank targets. He believes that: “The economic slowdown will be relatively short-lasting and free of any recession risks, and won’t have such a strong disinflation impact as projected.”
Glapinski against cuts
Glapinski was one of eight policy makers on the 10-member council to vote for May’s rate increase. He has called for a boost to borrowing costs each month since the start of the year. He opposed cuts in July and September.
Glapinksi does not believe that the rate-cut decision was “obvious” and doubts whether an easing cycle is appropriate. He said that inflation in the coming months “will be decisive for future monetary policy.”
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