Surprise interest rate cut triggered by Irish referendum and greater stability

The Monetary Policy Council (RPP) ordered a surprise half-point cut in its main interest rate yesterday in what analysts saw as a policy shift from fighting inflation to nurturing a fragile economic rebound. The cut to 7% wrong-footed the markets, which had expected it to hold borrowing costs on fiscal worries. Justifying its third easing in three months, the RPP said it had been able to cut because price growth had stabilized at a low level and few price pressures could be detected. "The current level of interest rates is nearly appropriate for the economic situation and inflation targets," National Bank governor Leszek Balcerowicz told a news conference. Investors poured money into Poland and other Eastern European markets after Ireland voted "yes" last weekend to the EU's plan to admit up to 10 new members in 2004, with bond markets rallying most strongly. The easing left the key money market rate nearly six points above inflation at 1.3% - evidence, say analysts, that the RPP's harping on inflation risks through an easing cycle dating back to early 2001 was overdone. Prime Minister Leszek Miller welcomed the rate cut but said it was too cautious. (Reuters) A.K.