Downward pressure

By Timothy Sifert

The Monetary Policy Council (RPP) will likely cut interest rates by a quarter of a percent when it meets this week, owing to negligible inflationary pressure and a need to further stimulate the economy, analysts said.

"The market still believes that there will be another 25-basis-point cut (and) that inflationary pressure is a little weaker than it was," said Marcin Mróz, senior economist at SG Bank.

Some economists said that with inflation at 0.6% for March, and expectations for a 0.7% average for 2003, the RPP has ample room to cut the intervention rate from 6% to 5.75% when it convenes on Wednesday and Thursday.

Lower interest rates encourage consumer spending, which gives a boost to inflation. Recently, inflation experienced a slight increase mainly due to high oil prices, an anomaly expected to drop to more comfortable levels given the positive way markets have perceived events in Iraq.

In all, the RPP could decrease rates by 100 basis points to 5% by the end of the year, Mróz noted. Though there are signs of relative stability in the economy, there is nothing definitive to point to a "strongly rebounding economy," he said.

However, the RPP's recent harsh critique of finance minister Grzegorz Kołodko's fiscal plan could push it to hold off on a rate cut this month, according to a report by Katarzyna Zajdel-Kurowska, head of treasury research at Citibank Handlowy. Other economists believe that this is unlikely.