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Markets were surprised by the Polish Central Bank’s second rise of interest rates in 3 months, they also issued a aggressive statements that prompted speculators to think that there will be more coming this year.
Increasing the main interest rates of 0.25 to 4.5% is mainly because of the stronger pressure on prices of wage growth and economic setup to a non-inflationary rate this coming quarter.
The major analysts had not expected this decision; they backed up the bank to increase at least on July. It caused bonds and the Warsaw Stock Exchange to lower while offering the zloty currency some support.
According to the bank BPH "the key rate in the end of 2007 will be 5% as expected” This statement is the shortest in years, and offers a strong signal that they are prepared to move again in months.
The bank’s move is a surprise cut in Hungary and holding the borrowing cost in Slovakian Central Bank yesterday. While on Thursday there will be a meeting with the Czech Central Bank. The economy of Poland grow to a decade high of 7.4% annually in the first quarter, this drives to inflation up to 2.3%, the wage growth of 9% last month.
A stronger competition, productivity gains and buoyant financial situation in the corporate sector are not needed to defend the 2.5% target in the coming quarters "The factors can not sustain inflation at the level of the goal” it said in its post-decision statement. "As told by the council, in the next quarters growth in the economy they will likely pursue the higher potential rate. An increase in wage pressure, consequence and price pressure is expected”
After the decision there is a jump of four basis points on bond yields, the Warsaw stock exchange W1G 20 index had fall to 1% more the increase return was supported but there is a gain of 0.3% in the zloty currency.
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Posted on Jun-28-2007
