Investors slam Polish rate setters over surprises

By bne IntelliNews March 14, 2013

bne -

Compounding a rough week, the National Bank of Poland (NBP) has drawn flak from some of the country's biggest investors over its failure to communicate policy accurately.

The Polish government jumped on the central bank's case instantly in the wake of its surprising 50-basis-point cut in interest rates announced on March 6, although it was Governor Marek Belka's accompanying announcement that the drop of rates to 3.25% will end the easing cycle, for now at least, that drew the rebuke. Warsaw has been hounding the Monetary Policy Council (MPC) to offer the rapidly slowing economy more stimulus for months.

However, while many analysts agreed that the NBP will likely need to resume easing in the coming months to help spur growth, the biggest surprise was the size of the move, which followed four 25bp cuts in as many months.

"Like most other analysts," wrote Tim Ash at Standard Bank, "I was surprised and taken aback by the latest move by the MPC. This was certainly not signalled in recent communication from the bank or indicated in recent MPC voting intentions." Danske Bank analysts were less circumspect, complaining "it is clear that the NBP has failed on guidance."

Investors are now jumping on that bandwagon to complain that the lack of guidance from Belka & Co makes it impossible to plan with accuracy. "We are unable to build a strategy on [benchmark rates] because it seems most of [the MPC's] decisions are taken at random," Maciej Karasinski, a fixed-income fund manager at Aviva, which runs Poland's second-largest pension fund with $19bn in assets, told Bloomberg. "It would have been impossible to predict a 50-basis-point cut."

Belka has appeared uncomfortable in offering the market guidance throughout the easing cycle, and the impression is that the unusually large cut may have been part of a deal with the more dovish members of the MPC to put the cuts to bed. Despite the fact that Belka had sounded extremely reluctant to implement another cut in March, most analysts had forecast further easing, with a minority plumping for a pause in the cycle. Not a single one suggested a cut greater than 25bp however.

Other investors suggest they have totally lost faith in the central bank's ability to offer the market the appropriate pointers. "The council first signaled a pause in rate reductions and then cut by 50 basis points," Tomasz Bartnicki, who manages around PLN7.8bn of debt at insurer Amplico Life and mutual fund Amplico TFI, told Bloomberg on March 8. "Now they are signalling the end of the cycle, but it is hard to tell what they'll end up doing. I'm not even trying to guess."

Belka, however, rejected accusations that the bank is at fault in an interview published on March 12 by the central bank's internet portal, saying that Poland's ten monetary policymakers will "never have the same message." The central bank was reacting to new information on the state of the economy, Belka claims. "The projections also showed there was room to reduce interest rates safely, which is why the council decided, in my view very correctly, on a deeper rate cut."

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