First rise in three years

As many expected, the National Bank of Poland (NBP) raised interest rates by 0.25 percentage points on April 25. This marks the first rise in almost three years and the only change since the bank reduced the rate to an all-time low of 4.0 percent in February 2006.

The rate rise had been widely anticipated as a pre-emptive action to reduce price pressures in the booming economy. Inflation hit its 2.5-percent target in March and wages surged more than nine percent year-on-year. In the same month, retail sales grew by 19.2 percent year-on-year and unemployment fell to 14.4 percent from February's figure of 14.9 percent.

Analysts remain divided whether further rises will follow in the months ahead. The central bank's statement said inflation was likely to exceed the 2.5-percent target in the medium term - giving the impression that further rate rises can be expected. But NBP president Sławomir Skrzypek was swift to quell such expectations. "The bank's statement should not be treated as a signal of subsequent rate increases," Skrzypek said.

The bank's statement also said that it expected inflation to fall below the target for H2 of this year. But many analysts think the bank should raise rates at least once more in order to avoid inflationary pressure in 2008 as the labour market tightens, wages rise and consumption surges. (Reuters)