Markets react without enthusiasm to Monetary Policy Council's rate cut

The central bank ordered a 150 basis point rate cut yesterday, adjusting borrowing costs to steeply falling inflation in a vote of confidence in the new Cabinet's promise of fiscal restraint. Commenting on its decision, the bank's Monetary Policy Council (RPP) said it welcomed the news that the planned budget deficit will not exceed zl.40 billion. This is the fifth time this year that the RPP has lowered the interest rate. National Bank of Poland (NBP) governor Leszek Balcerowicz explained that the cut became possible after annual inflation in September fell to 4.3%. According to analysts, further interest rate cuts may be possible, provided the government meets its fiscal promises. Although the news was welcomed by Finance Minister Marek Belka, the markets reacted negatively, apparently disappointed by the size of the cut. The Warsaw Stock Exchange (WSE) lost a large part of its day's gains after the news was announced. (Rzeczpospolita, p. B1; Gazeta Wyborcza, p. 1; Prawo i Gospodarka, p. 1; Reuters) J.K.