Interest rate hike surprises market and strengthens zł.

The Monetary Policy Council (RPP) has increased interest rates by 50 basis points - twice as much as the market had anticipated. Analysts expected a much smaller increase because of weaker economic figures for July - lower acceleration of the CPI index and high unemployment keeping salaries at a steady level. The RPP’s move resulted in strengthening domestic currency and improving profitability of the T-bonds. The Council justified the rise in response to a projection of inflation in August. According to the information the CPI will reach between 2.1-5.4% in Q4 2004. "I would like to stress that this is only a projection and not a forecast. This scenario will not occur thanks to our decision," said NBP chairman Leszek Balcerowicz. (Parkiet, p. 7) M.M.