Inflation keeps Polish interest rate at 4.5 pct

AP News
Posted: Dec 07, 2011 8:45 AM
Inflation keeps Polish interest rate at 4.5 pct

Poland's central bank kept its main interest rate unchanged at 4.5 percent Wednesday as it balances a worsening economic outlook with high inflation.

The National Bank of Poland's decision to hold interest rates at their highest level since 2009 was in line with expectations.

The bank did not give an immediate explanation for its decision. But economists note it came as the outlook for the Polish economy has worsened due to the crisis in the 17-country eurozone.

A slowing economy would give the bank reason to lower rates to stimulate borrowing _ but it is held back from doing so because that could add to inflationary pressures.

Consumer prices rose at an annual rate of 4.3 percent in October, markedly above the central bank's inflation target of 2.5 percent.

Wednesday's interest rate decision comes as the country's strong economic growth _ at about 4 percent this year _ is projected to lose momentum next year due to contagion from the crisis in Europe.

On Tuesday the center-right government of Prime Minster Donald Tusk presented a draft budget for 2012 which presupposes GDP growth of 2.5 percent.

Poland has not adopted the euro, which has allowed it to avoid some of the problems facing the 17 countries that use the common currency. However, the latest financial crisis in Europe has shaken investor confidence in emerging countries like Poland, causing its currency _ the zloty _ to weaken significantly against major currencies.

That weakening, in turn, has pushed up the costs of imported goods, adding to inflation.

"The rapid weakening of the zloty ... reduces the chances of a quick decline of inflation to the target," said Maja Goettig, chief economist for Bank BPH in Warsaw.