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Expectations on Polish inflation edge higher

WARSAW: Expectations on Polish inflation edged up this month after four months of stability, a monthly Reuters poll of 22 leading market analysts showed on Monday.

Despite the inflation outlook, none of the polled economists expected the central bank's rate setting council, the RPP, to raise interest rates again at its meeting on April 26.

All saw borrowing costs falling by the end of the year.

In the April poll economists forecast Poland's year-on-year inflation will quicken slightly to 7.2 percent in December, against last month's forecast of seven percent and the RPP's end-year price growth target of 5.4-6.8 percent.

Poland's official year-on-year inflation rate stood at 10.4 percent in February.

Analysts said they nudged up their inflation forecasts to reflect expectations of higher domestic electricity prices and falling chances of more interest rate rises.

HIGHER ELECTRICTY PRICES SEEN

"Electricity prices were raised administratively in March 1999 but this year we are still waiting for a decision, which raises CPI expectations," said Monika Kubik-Kwiatkowska, an economist at Standard & Poor's MMS in Frankfurt.

The Polish government created a legal framework to free electricity producer prices two years ago but has not yet fully liberalised the market, saying same legal adjustments were needed to allow true competition in the sector.

"But I don't think the RPP is likely to raise interest rates again because we have already seen strong foreign demand for fixed-income assets, which boosted the zloty. More zloty gains would be too bad for exports," Kubik-Kwiatkowska said.

Inflation surged in mid-1999 following government food market interventions, high domestic consumption and rocketing oil prices, prompting the RPP to raise rates three times by a total of 450 basis points to between 17.5 and 21.5 percent.

Analysts expect Poland's overnight rate for commercial banks to be cut to 18.6 percent by the end of this year from 21.5 percent at present.

The 28-day NBP-bill yield -- typically 10 basis points higher than the central bank's minimum intervention rate -- is seen falling to an average of 15.2 percent in 2000.

NO INTEREST RATE RISE EXPECTED

"The chances for interest rate rises fell this month, prompting me to nudge up my inflation forecast," said Arkadiusz Krzesniak, chief economist at WBK Bank in Poznan.

The central bank's foreign trade data for February released last week showed persistent weakness in exports and no signs of a much hoped for recovery. Exports fell 13.4 percent in the January-February period this year.

For the first time this year, the Reuters survey showed an analyst expecting the Polish zloty's PLN monthly devaluation rate of 0.3 percent to be scrapped.

An RPP member said two weeks ago that the government, whose consent is now the only requirement needed for the full liberalisation of the zloty, would make its decision within a couple of weeks.

Following the government's decision the RPP would set the flotation date.-Reuters