Monetary Policy Council cuts rates and voices support for spending cuts

The Monetary Policy Council (RPP) yesterday cut all interest rates by 100 basis points, or 1 percentage point, and settled the inflation target for the year 2002 at the 5% level. The RPP decision was based on the assumption that the budget deficit will not exceed zl.40 billion in the next year. Leszek Balcerowicz, governor of the National Bank of Poland and head of the RPP, said during a press conference that most economic indices, including falling inflation, the moderate credit growth rate, and weakened economic prosperity worldwide, pointed to deeper cuts. "But these factors cannot be viewed in isolation from the budget situation. Here, we are getting information that very substantially narrows this scope. Uncertainty is significant," he said. The council expressed support for Finance Minister Jaroslaw Bauc's diagnosis of the current condition of the public finances, and for his cost-cutting proposals. Balcerowicz stressed that the deficit had to be brought down through spending cuts, and not by increasing the tax burden. (Rzeczpospolita, p. 1; Reuters) M.T.