Poland holds rate but will cut if economy, inflation slows

    The central bank of Poland held its interest rate unchanged, against the expectations of financial markets, but said it would cut rates if the economy continues to contract and inflation remains low.
    The National Bank of Poland (NBP) said it held its reference rate unchanged at 4.75 percent as inflation was expected to remain above the bank's 2.5 percent target until the end of the year even if it was expected to ease in coming months due to waning base effects and slowing demand.
    However, if fresh information, including the bank's projection for November inflation, confirm that the economic slowdown is protracted "while the risk of an increase in inflationary pressures are limited, the Council will ease monetary policy," the central bank said in a statement following a meeting of its Monetary Policy Council.
    Poland's inflation rate eased in August to 3.8 percent from July's 4.0 percent with a slight drop in inflationary expectations by both households and businesses.

    Economic growth has been slowing this year due to the impact of the euro area's debt crises, with Gross Domestic Product expanding by an annual 2.5 percent in the second quarter, down from 3.5 percent in the first quarter and 4.2 percent in the fourth quarter.
    "In the medium term, the slowdown in economic growth will contribute to inflation returning to the target while high commodity prices in the global markets remain an upward risk to inflation decline," the NBP said.
    The bank said data for July and August "point to a continued slowdown in economic conditions in 2012 Q3," and data for the labour market signal a possible slowdown in the private sector.
    Economists had expected the NBP to cut rates today, reversing May's 25 basis point increase. In February the bank cut rates by 25 basis points, with rates now at the same level as the start of 2012.
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