Polish Central Bank raises interest rates

ASTANA: Polish Central Bank Governor Marek Belka said on Saturday that market expectations that policymakers will raise interest rates by half a percentage by the end of the year are similar to his own thinking.

Belka said the Finance Ministry's conversion of euros on the open market had stabilised the zloty and made it tougher to speculate against while inflation was nearing its peak.

Poland's Monetary Policy Council surprised markets this month with its third interest rate rise this year, bringing the official rate to 4.25 percent.

Its members have since indicated more hikes will come, demarcating them from their counterparts in Poland's emerging European Union peers who are seen holding rates steady in the short term in the face of the contradicting influences of weak domestic demand and high oil and gas prices.

Polish markets, through forward rate agreements are now pricing in around half a percent of tightening over the next six months. That corresponds to roughly two quarter point hikes, a prospect Belka said was similar to his own thinking.

"We are not trying to follow the market. We take note of what the market thinks," Belka told Reuters on the sidelines of the European Bank for Reconstruction and Development's annual meeting in Kazakhstan's steppe capital.

"We have observed the expectations of the market and by-and-large they have converged with what I think."

When asked if he was speaking in the context of market expectations of two interest rate hikes, he said:

"I'm not saying this will happen, but we are not far from it.

This is very reasonable, it's not that expectations are going bananas."

Other members of the 10-strong MPC have also called for further monetary tightening in recent days, including Andrzej Kazmierczak and Elzbieta Chojna Duch.

Belka said shocks from high commodity prices were "going or gone" and inflation looked set to decline soon.

"We are approaching the peak. Don't ask me whether it will happen this month or next month, because this is completely unreasonable for us to guess," he said.

"However, it clearly looks that price shocks are basically dissipated. So we should have then a gradual, though probably not too dramatic, reduction of the inflation rate."

He added that the MPC forecasting models assumed a stable exchange rate, so any strengthening on the zloty that would translate into lower inflation pressure could be considered as "sort of an upside".

Belka said the Finance Ministry's decision to convert some of the 13-14 billion euros it has in its coffers this year on the open market appeared to have stabilised the zloty, which could otherwise face pressures from, for example, the euro zone debt crisis.

"You see what is happening with Greece.

However, still the zloty stands firm," he said. "So I think that what the minister decided stabilises the zloty in a sense and makes potential speculation against the zloty more difficult. If this is the minimal consequence of those sales, I'm happy."

Copyright Reuters, 2011