UPDATE 2-Poland cuts rates, more easing seen in December

Wed Nov 7, 2012 5:47pm GMT

* Polish c.bank cuts rates by 25 bps to 4.5 pct

* First rate cut in 3 years

* Governor Belka says next cut very likely in December

* Belka says high inflation remains key concern

By Karolina Slowikowska

WARSAW, Nov 7 (Reuters) - Poland's central bank cut interest rates for the first time in three years on Wednesday and its governor said it may ease monetary policy again as soon as next month.

The bank's Monetary Policy Council (MPC) joined other banks in the region to ease monetary policy to help slowing economies, cutting the key rate by 25 basis points to 4.5 percent.

Governor Marek Belka told a news conference after the decision that economic growth was slowing and that the likelihood of another rate cut in December was "significant".

The comments and the post-meeting statement that slashed forecasts for growth and inflation sent the zloty currency 0.6 percent lower against the euro, fuelling expectations for more easing ahead.

"Given reluctance of Polish central bankers to respond earlier to threats to economic growth, one could say better late than never," said Piotr Bujak, chief economist at Nordea Bank.

"We think the monetary easing in Poland will be continued with two more steps by 25 basis points in December and January."

Analysts have been calling on the central bank to slash borrowing costs on the back of falling investments and waning private consumption.

But Polish policymakers remained focused on stubbornly high inflation and raised interest rates in May, saying the slowdown was only moderate and kept them unmoved since then, even as data pointed to a sharp slowdown.

DEEP CUTS?

The central bank's new forecasts published on Wednesday point to growth slowing to 0.5-2.5 percent in 2013 from 2.0-2.6 this year and 4.3 percent in 2011.

The bank also said it saw inflation slowing to 1.8-3.1 percent in 2013 and 0.7-2.4 percent in 2014, below the bank's 2.5 percent target, assuming key interest rates remained unchanged.

In September inflation stood at an annual 3.8 percent.

Belka added on Wednesday that the Council was cautious in its easing of monetary policy because current inflation remained "very high".

This does not match many economists' expectations for deep rate cuts ahead.

"The easing expectations are very aggressive," said Rafal Benecki, chief economist at ING Bank in Warsaw.

Belka suggested that rate cuts in Poland will not be as extensive and not as deep as in the neighbouring Czech Republic, where rates are close to zero and the central bank is hinting at possible currency interventions to weaken the crown even further.

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