RPP cuts a quarter

Poland's Monetary Policy Council (RPP) cut interest rates by 25 basis points to an all-time low of 4.25 percent last week. The move was in line with analysts' predictions that the central bank would take advantage of low inflation to cut interest rates despite accelerating economic growth. The bank last cut interest rates in August 2005.

The markets reacted to the cut mildly. "The złoty did not react at all, while on the bonds maket there was an increased selling trend," stated Pekao analyst Tomasz Zdyb.

With Poland's inflation the lowest in Europe and its interest rates twice as high as the eurozone's, the government had been pressuring the central bank to lower interest rates. However, analysts agree that there was a strong case for the bank to act, which allowed it to avoid accusations that the cut was due to pressure from the government.

Inflation fell to a more than two-year low of 0.7 percent in December. Markets are of the opinion that inflation will not return to the central bank's target of 2.5 percent before 2007 at the earliest. (Reuters)