Poland Extends Record Rate Pause as Global Push to Tighten Slows

(Bloomberg) -- Poland left its key interest rate at a record-low as its lack of urgency to raise borrowing costs becomes less out of step with global central banks.

While Polish inflation rebounded more than forecast last month and the zloty depreciates, the Monetary Policy Council kept its benchmark at 1.5 percent on Wednesday, as predicted by all 28 economists surveyed by Bloomberg. Maintaining the rate differential with major economies won’t be a challenge any time soon for Governor Adam Glapinski as he looks to extend Poland’s longest-ever policy pause at least through next year.

Already facing little domestic pressure to pull off the country’s first rate hike since 2012, the National Bank of Poland faces an easier path now that policy makers from Japan to Sweden are choosing to stick with easy monetary policy. In the neighboring euro area, the main destination for Poland’s exports, the European Central Bank last month avoided any discussion of its next steps toward ending bond buying amid signs that the bloc’s economic growth is faltering.

“As the Polish MPC strongly observes interest-rate parity, the recent slowing in economic expansion in the euro zone,” alongside a deceleration in price growth, “should both keep the ECB dovish and support the cautious MPC view on rates,” PKO Bank Polski SA economists led by Joanna Bachert said in a report.

Economy, Inflation

Poland’s economy has for now been resilient to the slowdown elsewhere in Europe. Gross domestic product expanded faster than forecast last quarter, growing 5.1 percent from a year earlier. Meanwhile, inflation has remained in line with the central bank’s projection and is set to undershoot the 2.5 percent target this year and hover slightly above it in 2019. The annual consumer-price index rose to 1.6 percent in April.

The zloty is a concern, however, after a selloff in May put it on track for a fourth month of declines. In developing Europe this year, it’s the third-worst performer against the euro after Russia’s ruble and the Turkish lira.

The Polish currency snapped three days of losses on Wednesday, rebounding 0.2 percent to 4.2888 per euro as of 12:53 p.m. in Warsaw. Earlier this week, the zloty briefly breached 4.3 against the common currency for the first time since October.

Currency losses, in combination with a rally in oil, could spell trouble for eastern Europe’s biggest importer of energy, according to Pawel Radwanski, chief economist at Raiffeisen Polbank in Warsaw. Should fuel prices continue to rise at their current pace until the end of 2018 as the zloty retreats, inflation may approach 3 percent already at the start of next year, he said.

That would “certainly stimulate a discussion about the need to adjust monetary policy,” Radwanski said. “Some members of the committee may look with concern at the recent increase in oil prices in parallel to the zloty’s weakening.”

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