RPP surprises markets with earlier-than-expected interest rate cut of 1.5%

In a move that went against the advice of many market analysts, the Monetary Policy Council (RPP) yesterday slashed its basic interest rates, describing the cut as a response to the country's declining economic growth. The RPP reduced the 28-day intervention rate to 15.5% from 17%, and lowered the discount rate to 18% and the emergency Lombard rate to 19.5%. Banks are likely to follow suit by lowering their interest rates on mortgages and savings accounts. Leszek Balcerowicz, president of the National Bank of Poland (NBP), attributed the RPP's decision to the latest prognosis from the NBP and the Finance Ministry, as well as feedback from research institutes, all of which point to a favorable decrease in this year's inflation rate. Balcerowicz forecasts that the inflation rate this year will fall to approximately 6%, adding that the country's economic growth will depend on the removal of unjustified price rises in goods and services and excessive taxation on employers. An economist at the Adam Smith Center, Krzysztof Dzierzawski, contends that the RPP's decision will have little impact on economic growth, in view of numerous other factors that should take priority. (Gazeta Wyborcza, p. 1, Prawo i Gospodarka, p. 1, Reuters) M.T.K.