RPP cuts key rates by 1%, further lowering expected in coming months

The Monetary Policy Council (RPP) yesterday eased key interest rates by one percentage point to 18%-22%, effective 1 March. The RPP lowered its main interest rate, the minimum 28-day intervention rate to 18%, its emergency lombard lending rate to 22% and the discount rate to 20.5%. The 10-member council has kept a tight grip on monetary policy since early 2000 in an effort to quell domestic demand and reduce inflation. National Bank of Poland President Leszek Balcerowicz indicated that the high interest rates had positively affected the economy, bringing about lower inflation, a more manageable current account deficit, and increased savings among households. The council however refrained from a bigger cut because of uncertainty over the budget, one-fourth of which was spent in January alone. Economists forecast a subsequent decrease of several percentage points could take place in March or April. Currently, banks are not likely to react to the RPP's decision, as many of them have already decreased rates owing to the lower value of money on the market. (Reuters; Rzeczpospolita, pp. A1, B1) M.T.