The Polish ruling party’s promise to lower the age at which Poles can tap state pensions adds to the headwinds facing the country’s bonds, said Rafal Benecki, chief economist at ING Bank Slaski SA.
Facing a tight election on Oct. 15, the Law & Justice party announced plans on Saturday to effectively reduce what’s already one of the lowest retirement ages in the European Union by as much as four years. The announcement came days after a surprisingly deep interest-rate cut blindsided investors last week and brought turmoil to Polish assets.
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Benecki said election promises by the ruling party — which also include a boost in the minimum wage and forcing grocers to sell more local products — will keep Poland’s inflation above the central bank’s target for longer. Early and “aggressive” easing will also keep price growth higher after an expected decline in the next few months due to base effects, he said.
“The latest budget, retirement, wage and social-spending decisions suggest the return of high inflation,” Benecki wrote in an email to Bloomberg News on Sunday. “This suggests further weakening of long-term bonds and a steeping of yield curve.”
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The yield spread between Poland’s 2-year and 10-year local-currency bonds jumped to 79 basis points last week, the highest level in 20 months. Short-term rates dropped in the wake of the rate cut, while concerns over sticky inflation kept longer-tenor bonds capped.
