Poland Extends Record Rate Pause as Global Mood Turns Dovish

(Bloomberg) -- Poland kept borrowing costs at a record low as a more dovish mood among the world’s major central banks bolsters its quest to avoid interest-rate hikes for a decade.

With concern building over global growth, the key rate was left at 1.5 percent on Wednesday, matching all economist predictions in a Bloomberg survey. Governor Adam Glapinski said last month that the benchmark may stay unchanged into 2022, when the term of the current Monetary Policy Council ends. The last increase came in 2012.

Until recently, the European Union’s largest eastern economy was something of an outlier, stubbornly resisting the idea of raising rates even as monetary-policy makers from Prague to Washington did just that. The latest global shift means it’s now easier for Poland to extend its unprecedented pause.

Poland Extends Record Rate Pause as Global Mood Turns Dovish

Glapinski suggested Wednesday that the Federal Reserve and others may have been too hasty in switching to monetary tightening.

“They admit now that they made a mistake,” he told reporters. “We neither cut too much, nor did we raise, even under strong pressure to do so. As a result, we’re now in the perfect position. Our situation is very safe and we don’t need to consider any changes in our monetary policy.”

He said rates would stay where they are at least into 2020. “We’re conservatively using the same policy, maybe even for the longest time in the world. It works and it’s good.”

Polish economic data provide another reason for the central bank to stand pat.

While growth has been at least 5 percent for the past five quarters, the outlook dimmed after Germany -- Poland’s main trading partner -- barely avoided recession last year. Weak indicators from around the euro area have tempered market expectations for an increase in borrowing costs by the ECB, which some analysts believe would trigger a Polish hike.

  • Poland’s purchasing managers’ index stayed below 50 in January, indicating a third month of contraction in the manufacturing industry
  • Lower oil prices and a freeze on local electricity prices should help keep inflation near the central bank’s target until 2020
  • Derivatives investors are coming around to the central bank’s view on rates. Having priced in a quarter-point increase as recently as October, 12-month forward-rate agreements now signal that there’s a cut is more likely than a hike

The central bank’s rhetoric may only change in the unlikely event of a strong and lasting rebound in inflation, according to Bank Millennium SA analysts led by Grzegorz Maliszewski. “We expect interest rates won’t change this year, and they’ll most likely remain at their current level until the end of the current MPC’s term of office.”

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