Poland Poised to Keep Rate on Hold as Growth, Prices to Pick Up

By Dorota Bartyzel and David McQuaid

Aug. 26 (Bloomberg) -- Poland’s central bank will probably leave the benchmark interest rate unchanged at a record low for a second month after inflation accelerated and signs emerged economic growth is picking up, a survey of economists shows.

Policy makers will keep the seven-day reference rate at 3.5 percent today, according to all 20 economists surveyed by Bloomberg. The central bank will announce its decision early this afternoon in Warsaw.

The Narodowy Bank Polski has probably ended a series of reductions after trimming the main rate by 2.5 percentage points since November as the economy, the only one in eastern Europe to avoid a recession, is poised to pick up pace. The biggest jump in retail sales this year fueled gains in the zloty and the rising inflation rate suggests there’s no room for reductions.

“The probability of another rate cut has vanished,” said Radoslaw Bodys, an economist at Bank of America Merrill Lynch in London.

The zloty rose 0.5 percent against the euro yesterday, closing at 4.0847 to the common currency from 4.0993 in the previous trading day.

Nine of 15 economists polled by Bloomberg yesterday said there will be no further cuts and seven see an increase as soon as the middle of next year. Last month, 10 of 15 economists predicted one more rate cut, most likely in October.

Mounting Evidence

Still, central bank Governor Slawomir Skrzypek has maintained the bank is not finished lowering borrowing costs, even after policy makers left the benchmark rate unchanged on July 29.

Since the last decision, the statistics office reported the July inflation rate rose to 3.6 percent, exceeding the bank’s preferred range of 1.5 percent to 3.5 percent, while core inflation, excluding food and energy costs, accelerated for a sixth month to the fastest pace in eight months.

Wages rose an annual 3.9 percent in July, almost double the June gain, and retail sales expanded an annual 5.7 percent, the biggest advance this year.

“It’s too early to expect a hike, but Poland may be added to the list of countries that will likely be among the first to tighten policy, following Israel’s surprise move yesterday,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, in a note to clients.

‘Shut the Window’

Accelerating inflation has “shut the window” on further easing, policy maker Dariusz Filar said on Aug. 13 after the publication of consumer-price data. Others in the 10-member rate-setting board have expressed similar sentiments.

“Our baseline assumption is that the easing cycle is over,” said Grzegorz Maliszewski, chief economist at Bank Millennium SA in Warsaw, who predicted the first quarter-point increase will come in late 2010.

Still, six of 15 economists in the survey continued to predict a further quarter-point cut in late 2009 or the first half of 2010.

“It’s too early to say definitively there will be no more rate cuts,” said Dariusz Winek, the chief economist at Bank Gospodarki Zywnosciowej SA in Warsaw. “The July retail figures significantly reduced the chances.”

The government, which downgraded its growth forecast in June to an annual 0.2 percent from 3.7 percent, may consider upgrading its estimate after the Aug. 28 publication of second- quarter data, said Deputy Finance Minister Ludwik Kotecki.

Zbigniew Chlebowski, an official of the ruling Civic Platform party, said gross domestic product in the second quarter may have risen 1 percent, compared with an economists’ median forecast of 0.5 percent in a Bloomberg survey.

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net David McQuaid in Warsaw at Dmcquaid1@bloomberg.net