Poland's central bank cut its reference rate for the second month in a row due to weaker than expected economic growth, a stronger than expected decline in inflation and continued uncertainty over the scale and timing of the expected economic recovery in the euro area that could adversely affect economic activity in Poland.
The National Bank of Poland (NBP), which has cut rates by 150 basis points this year, did not give a specific guidance for future decisions, but said easier monetary policy since November 2012 "supports economic recovery and limits the risk of inflation running below the NBP target in the medium term."
Earlier today the NBP cut its benchmark reference rate by 25 basis points to 2.75 percent.
Poland's inflation rate fell again in April to 0.8 percent from 1.0 percent in March due to lower growth in energy prices, including fuel, markedly lower than the NBP's target of 2.5 percent within a one percentage point range.
"At the same time, low level of core inflation, as well as a stronger decline in producer prices, confirm persistently low demand and cost pressure in the economy," the central bank said, adding that households' expectation of inflation has also declined further.
Economic growth in Poland was weaker than expected in the first quarter of 2013 and the NBP said April data and business climate indicators "show that weak economic growth continued at the beginning of Q2."
In the first quarter, Poland's Gross Domestic Product rose by an annual 0.5 percent, down from 0.7 percent in the fourth quarter, due to lower exports and a persistent decline in domestic demand that was driven by falling investment, the central bank said.
Lower demand has lead to higher unemployment and April data also point to continued decline in employment, which is supporting low wage growth, along with low growth in loans to households and businesses, the NBP said.
"Weak global activity growth, and the previous fall in commodity prices, has supported further decline in inflation in many countries," the central bank said, adding that "despite signs of some improvement, recent data on business conditions in the euro area point to persistently negative trends in that economy at the beginning of Q2."
Poland's economy slowed to 1.9 percent growth in 2012, from 4.5 percent in 2011, and the central bank has forecast growth of 1.3 percent this year.
The central bank started cutting rates in November 2012 - a move that was criticized as being too late to cushion the impact from recession in the euro area - reducing the reference rate by 150 basis points from 4.75 percent to to 3.25 percent.
The central bank then froze rates in April to review the impact of its easing but as the economy continued to slow down, the NBP started cutting rates again in May.