ROUNDUP Polish inflation just below expectations, current account soars

ROUNDUP Polish inflation just below expectations, current account soars

	Published : Fri, 13 Jul 2007 15:05 By : Agencies Print this Story

WARSAW (Thomson Financial) - Polish consumer price inflation came in just below market consensus in June, cooling expectations of a fresh rise in interest rates this month despite topping the central bank's 2.5 pct target for the first time since 2005.

Statistical office data showed prices rose 2.6 pct in annual terms compared to analysts' 2.7 pct consensus forecast. Month-on-month the index was unchanged and analysts said food prices had dipped more than expected since May.

Separate data from the central bank also showed Poland's current account deficit soared to 1.202 bln eur in May, above market expectations of 822 mln eur.

Both sets of data were negative for the zloty, showing that outflows of cash from the Polish economy were rising and undermining the case for another rise in interest rates and hence the return on zloty deposits.

Analysts said the inflation data bolstered the case for the central bank to keep borrowing costs on hold this month after two consecutive increases. The zloty lost around 0.3 pct after the data.

'We think a hike in August is more likely than in July,' said Bartosz Pawlowski, economist with ING Bank Slaski in Warsaw.

'For the market, inflation coming in below expectations will strengthen the impact of recent dovish statements by central bank policy council members. These data are moderately positive for bond markets.'

Central bank policymaker Jan Czekaj told Thomson Financial News he had expected inflation to exceed the bank's 2.5 pct target in June before the bank voted to raise interest rates last month.

Most economists think the balance of power on the bank's 10-strong council gave Czekaj the casting vote in both of its last two rate moves.

'These data were in line with our expectations. They are not a surprise,' Czekaj said. 'It was expected already a month ago that inflation would be above the target in June. We will now wait for data on wages and production next week as well as the bank's inflation projection.'

Latest polling by the PAP state news agency had shown analysts expected a deficit of 822 mln eur, up from a deficit of 700 mln eur in April.

The data also showed the deficit on trade alone totalled 734 mln eur. Exports rose 11.4 pct to 8.69 bln in May while imports rose 14.4 pct to 9.43 bln.

The office's data showed food, drink and tobacco costs rose 4.1 pct year-on-year. Fuel prices rose 4.1 pct. Costs of housing rose 3.5 pct. The largest fall was in clothing and shoes - down 7.4 pct year-on-year.

'CPI can fall below 2 pct in one of the summer months, but the fall will depend on food and fuel prices,' Deputy Finance Minister Zajdel-Kurowska told Thomson Financial News, adding the data had not altered her forecasts for inflation next year.

pawel.sobczak@thomson.com *48 22 447 2430

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