Rates drop, WSE posts strong gains
The National Bank of Poland lowered on Monday its two key interest rates by two percentage points. The Lombard rate, the rate at which banks borrow from the central bank giving securities as collateral, was lowered from 28% to 26%, and the rediscount rate, used for discounting commercial bills of exchange accepted by the NBP, was lowered to 23%. The Warsaw interbank offering rate, a better representation of banks' actual cost of funds, followed suit, dropping by around 2% on the news of the official rate cut to around 23.5%.
The NBP also slowed the devaluation of the crawling peg, the center point around which banks set their exchange rates, by .2%, to 1% monthly, allowing for a strengthening of the zloty in relation to other currencies.
"We feel that the relatively peaceful fourth quarter of last year justifies the lower rates," said NBP President Hanna Gronkiewicz-Waltz, pointing out that 22.5% year-on-year inflation estimates for 1995 were lower than those forecast by the central bank. "These actions should lead to strengthening the growth of investment and a stabilization of the money markets."
Analysts say that the moves signify an easing of tensions between former right-wing presidential candidate Gronkiewicz-Waltz and left-wing Finance Minister Grzegorz Kolodko, who had been calling for the cuts for several months.
"It's a breakthrough," said Jacek Stefanski, head of research at Bank Pekao SA brokerage. "We can only hope that this will last, and that it's not only something on the surface."
The interest-rate cut follows December's one-off, 6% revaluation of the NBP's central parity rate - around which banks set foreign exchange rates - and the subsequent 2.5% appreciation of the zloty versus the currency basket. The NBP had been intervening substantially in the market to prevent the currency's appreciation, which led to dynamic growth last year in foreign reserves by 150% to $15 billion.
"I think she (Gronkiewicz-Waltz) may have realized that her policy was creating the reserve growth," said Jacek Wachowicz, a trader at Cargill in Warsaw. "I think this is a sign she's going to be very tough this year on reserves."
Wachowicz pointed out the substantial foreign interest in the T-bill auction preceding the NBP's announcement, with demand at $1.5 billion for the 52-week paper's $1 billion offered. "But the lucky ones were the ones who bought before December's rate recalculation," he said.
The stock market also rallied in anticipation of the rate cut, gaining 9.4% in the first week of 1996 trading. On Monday and Tuesday the rally continued, with the all-share WIG index rising 6.1% to 8811 points (see Stock Watch, p. 19).
While most analysts anticipated the rate cut and slowing the devaluation of the crawling peg, the move came a little bit sooner than many expected.
"Before the NBP was very conservative, and we thought they would wait till they knew the inflation figures for December and the first 10 days of January," said Jarek Bartkiewicz, analyst at Pioneer First Polish Trust Fund Company. "But I think they wanted to cut the inflow of speculative capital in anticipation of the cuts."
The other factor motivating the decision was the new political division of power, with Gronkiewicz-Waltz now actually agreeing with Kolodko's 1996 inflation estimates of 17% and showing willingness to work with the Finance Ministry to meet those goals, Bartkiewicz said.
"The presidential campaign made her (Gronkiewicz-Waltz's) position much weaker, and I would be willing to observe a little weaker policy of the central bank in favor of the Finance Ministry," he said.
The NBP also slowed the devaluation of the crawling peg, the center point around which banks set their exchange rates, by .2%, to 1% monthly, allowing for a strengthening of the zloty in relation to other currencies.
"We feel that the relatively peaceful fourth quarter of last year justifies the lower rates," said NBP President Hanna Gronkiewicz-Waltz, pointing out that 22.5% year-on-year inflation estimates for 1995 were lower than those forecast by the central bank. "These actions should lead to strengthening the growth of investment and a stabilization of the money markets."
Analysts say that the moves signify an easing of tensions between former right-wing presidential candidate Gronkiewicz-Waltz and left-wing Finance Minister Grzegorz Kolodko, who had been calling for the cuts for several months.
"It's a breakthrough," said Jacek Stefanski, head of research at Bank Pekao SA brokerage. "We can only hope that this will last, and that it's not only something on the surface."
The interest-rate cut follows December's one-off, 6% revaluation of the NBP's central parity rate - around which banks set foreign exchange rates - and the subsequent 2.5% appreciation of the zloty versus the currency basket. The NBP had been intervening substantially in the market to prevent the currency's appreciation, which led to dynamic growth last year in foreign reserves by 150% to $15 billion.
"I think she (Gronkiewicz-Waltz) may have realized that her policy was creating the reserve growth," said Jacek Wachowicz, a trader at Cargill in Warsaw. "I think this is a sign she's going to be very tough this year on reserves."
Wachowicz pointed out the substantial foreign interest in the T-bill auction preceding the NBP's announcement, with demand at $1.5 billion for the 52-week paper's $1 billion offered. "But the lucky ones were the ones who bought before December's rate recalculation," he said.
The stock market also rallied in anticipation of the rate cut, gaining 9.4% in the first week of 1996 trading. On Monday and Tuesday the rally continued, with the all-share WIG index rising 6.1% to 8811 points (see Stock Watch, p. 19).
While most analysts anticipated the rate cut and slowing the devaluation of the crawling peg, the move came a little bit sooner than many expected.
"Before the NBP was very conservative, and we thought they would wait till they knew the inflation figures for December and the first 10 days of January," said Jarek Bartkiewicz, analyst at Pioneer First Polish Trust Fund Company. "But I think they wanted to cut the inflow of speculative capital in anticipation of the cuts."
The other factor motivating the decision was the new political division of power, with Gronkiewicz-Waltz now actually agreeing with Kolodko's 1996 inflation estimates of 17% and showing willingness to work with the Finance Ministry to meet those goals, Bartkiewicz said.
"The presidential campaign made her (Gronkiewicz-Waltz's) position much weaker, and I would be willing to observe a little weaker policy of the central bank in favor of the Finance Ministry," he said.
