Polish Central Bank Likely to Keep Rates Unchanged: Week Ahead

By Katya Andrusz

Sept. 28 (Bloomberg) -- Poland’s central bank will probably leave the benchmark interest rate unchanged at a record low for a third month as the economy sustains growth and inflation is forecast to slow.

Policy makers will leave the seven-day reference rate at 3.5 percent, according to all 17 economists surveyed by Bloomberg. The Monetary Policy Council begins its meeting tomorrow in Warsaw and will announce its decision on Sept. 30.

Policy makers have lowered the key rate by as much as 2.5 percentage points since November to help the economy withstand a wave of recessions sweeping across Europe. Gross domestic product grew 1.1 percent in the second quarter, leading the European Union to say the largest of its eastern members may be the only country in the bloc to post positive growth this year.

A tightening labor market and forecasts that inflation will slow mean the bank “is likely to keep rates flat throughout next year,” said Maja Goettig, chief economist at Bank BPH SA in Warsaw. It may change its informal policy stance to “neutral” from “easing” in October, Goettig said, and “things could change in the second half of 2010 -- the European Central Bank’s decisions will be key there.”

The central bank said after last month’s meeting that it saw low prices as a bigger threat to its inflation target than higher prices, as “in the medium term, low demand pressure and slowing growth of labor costs” will push inflation down. According to Goettig, the annual inflation rate will be at around the bank’s target of 2.5 percent in mid-2010.

‘Controversial’

The bank may also discuss policy guidelines for next year, as well as proposals announced this month by Governor Slawomir Skrzypek to boost lending by commercial banks, ING Bank Slaski chief economist Mateusz Szczurek wrote in a note to investors.

Policy maker Andrzej Slawinski said in a Bloomberg interview last week that a suggestion the central bank may buy bonds issued by commercial banks was “controversial.” His colleague Andrzej Wojtyna told PAP newswire he and his colleagues had not been consulted. The MPC must approve the measures before they can come into effect.

Other proposals announced on Sept. 10 include doubling the possible duration of repurchase operations to 12 months and starting a new discount facility that would allow banks to use corporate promissory notes as security.

“The markets may react negatively if the council doesn’t approve the proposals,” said Raffaella Tenconi, chief economist at Wood & Co. in Prague. “If they were approved now, we could already see the impact by the end of the year.”

Inflation Estimate

The Finance Ministry will publish its September inflation estimate on Oct. 1. Consumer prices rose by 3.7 percent in August, above the bank’s target range of between 1.5 percent and 3.5 percent for a second month.

The bank will also report the second-quarter current account on Sept. 30 that is likely to show a surplus of 770 million euros ($1.1 billion), according to a Bloomberg survey. The September manufacturing index will be released on Oct. 1 after rising in August to the highest level in more than a year.

In last week’s markets, Azoty Tarnow shares rose the most in a month and Ciech SA rallied after offers of state- owned stakes in the the Polish chemical producers generated bids above the market price. The benchmark WIG20 Index of stocks rose 4.6 percent, closing at 2245.27. The zloty fell 1.3 percent against the euro to 4.1968.

The following is a list of important events this week:

T-bill auction                                    9/28
September Consumer Confidence                     9/29
Interest-rate decision                            9/30
Second-quarter current account                    9/30
September PMI                                     10/1
September inflation estimate                      10/1

To contact the reporter on the story: Katya Andrusz in Warsaw at kandrusz@bloomberg.net