The central bank of Poland, which earlier cut its reference rate by 25 basis points to 4.50 percent, said it would cut rates further if there are signs of a protracted economic slowdown and inflation remains under control.
The National Bank of Poland (NBP) said recent data had confirmed that the Polish economy was slowing and this would restrain wage and inflationary pressures. According to the central bank's new forecast, inflation should return to its target in coming quarters but might also drop below the bank's 2.5 percent target in the medium term.
Growth in Poland's economy is forecast to remain below potential in coming years, the NBP said, cutting its forecast for 2012 growth to 2.0-2.6 percent, down from July's forecast of 2.2-3.6 percent.
In 2013 the forecast calls for Gross Domestic Product growth of 0.5-2.5 percent, down from its previous forecast of 1.0-3.2 percent, and 2014 growth of 1.1-3.5 percent.
"In the opinion of the Council, incoming data confirm a considerable economic slowdown in
Poland, which contains wage and inflationary pressure," the central bank said, adding:
"Should the incoming information confirm a protracted economic slowdown, and should the
risk of increase in inflationary pressure remain limited, the Council will further ease monetary
Poland's economy, which expanded by 4.3 percent in 2011, has been slowing sharply in recent months, mainly due to the euro zone's debt crises and economic contraction. In the second quarter, Poland's GDP rose by 2.5 percent, down from 3.5 percent in the first quarter and 4.2 percent in the fourth quarter of last year.
"Economic activity data were worse than expected and reflected further economic slowdown in 2012 Q3," the NBP said, noting that industrial output and retail sales in real terms declined in September while the fall in construction and assembly output deepened.
A continued fall in employment, slower wage growth and a gradually rising unemployment rate "point to a lack of wage pressure and likely further weakening in private demand," the bank added.
Poland's inflation rate remained steady at 3.8 percent in September, above the bank's target, but the NBP said core inflation and producer price growth continued to fall, which confirms that demand pressure is weakening. Household and corporate inflation expectations also declined.
Under the NBP's latest forecast, which assumes unchanged interest rates, there is a 50 percent probability of inflation in the range of 3.7-3.9 percent in 2012, then easing to 1.8-3.1 percent in 2013 and 0.7-2.4 percent in 2014.
Poland's inflation rate was 4.2 percent in 2011.