The Polish central bank cut interest rates for the fourth time in a row Wednesday in a bid to re-inject some pace into its slowing economic growth.
Meanwhile, the neighboring Czech Republic kept rates close to zero and, with barely any room for further cuts, and is now expected to explore alternative ways of kick-starting its recession-hit economy.
The National Bank of Poland cut its benchmark rate by a quarter of a percentage point to 3.75%. The government is braced for a tough first half this year after the economy grew by 2% in 2012 compared with 4.3% in 2011.
It’s unlikely to cut rates much more. The Polish central bank has said repeatedly that it will keep its nominal main rate above consumer price inflation, which stood at 2.4% on the year in December. It said that slashing rates close to zero along the lines of the Czech Republic and the euro zone would risk encouraging a credit boom while discouraging savings.
Central bank governor Marek Belka said last month that the current round of monetary easing is nearing an end. Some analysts say this would be a mistake. Bartosz Pawlowski, head of emerging Europe strategy at BNP Paribas BNP.FR -1.88%, said the Polish central bank has been behind the curve with rate cuts. ING economist Grzegorz Ogonek expects the main rate could be reduced to 3%.
The central bank is likely to cut its economic growth forecasts further when it gives its new outlook in March. In its November forecasts, it cut the growth rate for this year to 1.5%.
The economy is expected to bottom out around mid-year and start to pick up again in the second half, making the central bank less enthusiastic about reducing credit costs much more.
“We’re nearing a moment that in theory should improve medium-term growth perspectives,” said PKO Bank Polski PKO.WA -0.03% economist Aleksandra Bluj. “Therefore the probability that the easing cycle will continue and take the benchmark rate toward 3%… bears significant risk,” she said.
The Czech Republic no longer has room for further cuts as its main rate was unchanged Wednesday at 0.05%. Super-low rates have so far failed to boost the recession-hit Czech economy, while inflation has been slowing.
Czech policymakers have warned that they won’t tolerate a strong koruna but have stopped short of setting a target foreign exchange rate. The koruna has lost over 5% against the euro since last autumn when the warning was first given, which analysts say now makes market intervention unlikely.
Jan Bures, chief economist at Postovni Sporitelna, said Tuesday that the central bank will now try to force down the country’s interbank offered rate, which is the rate banks charge each other.
Mr. Bures expects the central bank to seek a Prague interbank rate of 0.2% compared with the current rate of about 5%.
The catch is how the central bank could execute such a move.
Central bank governor Miroslav Singer is expected to discuss the possible use of non-standard tools at a news conference later Wednesday.
Patryk Wasilewski in Warsaw contributed to this article.
Write to Marcin Sobczyk at marcin.sobczyk
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