Poland debates end to year-long rate pause

WARSAW / Bloomberg

Polish Central Bank (PCB) Governor Marek Belka said rate setters are debating how to transition from their pause in monetary easing as they weigh the risk of deterioration in the global economy and potential capital inflows as a result of the euro area’s quantitative easing program.
The 10-member council left the seven-day reference rate at a record-low 1.5 percent, matching the predictions of all but one of the 35 economists surveyed by Bloomberg. The central bank said deflation will continue in the coming quarters, with its staff projection cutting inflation forecasts for this year and next.
The National Bank of Poland, which last lowered borrowing costs a year ago, is diverging further from its counterparts in the euro region after a decision by the European Central Bank on Thursday to deliver rate cuts, more bond purchases and a potential subsidy to lenders in a renewed attack against the threat of deflation. Those new measures could spur inflows of short-term deposits to Polish lenders and may require attention from the central bank, according to Belka.
“We’ve promised ourselves today to discuss more deeply what scenario of events in the global and Polish economy would prompt us to change rates or our bias,” Belka, whose term ends in June, said at a news conference.
“Over a certain time horizon, we may need to correct our monetary policy, but it has nothing to do with our propensity to think about such changes right now.”
Steady policy remained the most probable scenario for the time being because the central bank needs to have “ammunition” in case of a global crisis, he said.

Zloty, FRAs
The zloty extended gains and traded 1.1 percent stronger at 4.2902 versus the euro as of 5:18 p.m. in Warsaw. Six-month forward-rate agreements were 25 basis points below the Warsaw Interbank Offered Rate, indicating traders are expecting a quarter-point cut.
Under Belka, the central bank reduced its benchmark by 325 basis points over almost three years, marking the longest monetary easing cycle in Poland’s modern history. That’s helped the European Union’s largest eastern economy to boost growth from 1.6 percent in 2012 to 3.6 percent last year.

Below Target
The central bank said its staff projection showed inflation this year will stay in a range between minus 0.9 percent and 0.2 percent, down from 0.2 percent to 0.4 percent seen in November
forecasts.
It will be in the range of 0.2 percent to 2.3 percent next year, below policy makers’ goal of 2.5 percent.
The continued undershoot by prices is no reason to change the bank’s inflation-targeting mandate, Marek Chrzanowski, a new member of the panel, said at the conference.
The target should be treated as a medium-term goal, Jerzy Kropiwnicki, another new central banker, told
reporters.
“Whatever the reason behind the deflation, it is hard to ignore the persistently low CPI and the Polish central bank may be under pressure to act, or at least to send a signal that it is ready to fulfill its mandate,” said Piotr Kalisz, chief economist at Citigroup Inc.’s Polish unit.