Not so great Expectations

The Finance Ministry is forecasting third-quarter GDP growth will come in at 3.4 percent and full year growth at just above three percent. Previously the Ministry expected growth of 3.7 percent. In the second quarter of this year GDP grew by 2.8 percent. In 2004 the economy grew by 5.4 percent, while the budget for 2005 was written with the expectation of five percent growth.

The Ministry also said that inflation would remain around the lower level of the central bank's target of 1.5-3.5 percent at the end of the year. This, according to the Ministry, would allow the central bank's interest rate policy to remain "accommodative." 

Although the central bank has cut interest rates by 200 basis points since March, the policymakers are signaling that rates are likely to be kept on hold until the official Q3 results are published in November. "Statistics from the third quarter, especially economic growth and inflation, will be key to the Monetary Policy Council's further decisions," Council member Mirosław Pietrewicz said.

Pietrewicz also thinks that the central bank should cut rates if annual GDP growth reaches just above 3 percent. However, if growth reaches between 3.5 and 3.7 percent, he thinks that current levels are optimal. (Reuters)