Poland’s Baffling QE Auction Sparks Talk of ‘Silent Taper’

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Poland’s central bank bought much less government debt than it indicated for a second straight month, sparking speculation that it’s quietly scaling down its quantitative easing program.

The National Bank of Poland bought 2.03 billion zloty ($545 million) of bonds on Wednesday, just 36% of what investors offered to sell at the auction, after saying it was ready to accept as much as 10 billion zloty.

The amounts purchased at the previous operation in May also fell drastically short of the offer, leading to a sell-off on the local bond market.

“It would be hard for market participants to interpret the results otherwise than as a silent taper,” Bank Pekao SA economists wrote. Analysts at MBank SA said that the trend of smaller purchases is going to continue until the quantitative easing program is halted before a first rate increase.

The yield on Poland’s 5-year government bond rose 3 basis points after the auction to 1.2%.

The central bank’s press office wasn’t immediately available for comment. Governor Adam Glapinski said on June 11 that the central bank wasn’t trying to reduce the scale of EU at its May 25 auction. He said the monetary authority simply rejected offers from investors because bond prices were “abnormally” high.

At the same time, the governor repeated that the central bank will need to end QE before it lifts rates and stressed his institution wants to keep monetary policy loose until the economic rebound is well under way.

Policy makers are under pressure to act against surging inflation that has already pushed their counterparts in Hungary and the Czech Republic to signal imminent interest-rate increases.

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