Poland lowers key interest rate to 3.25 percent

AP News
Posted: Mar 06, 2013 10:29 AM

WARSAW, Poland (AP) — The National Bank of Poland lowered its key interest rate by half a percentage point to a record low of 3.25 percent on Wednesday, a surprise move given that many economists had predicted a cut of a quarter point and others expected no cut at all.

In explaining its move, the central bank noted that economic data for the fourth quarter of 2012 showed a "marked economic slowdown" and that continued low growth is expected in the early part of this year. The problems it cited include weakening consumer demand, a decline in investments, rising unemployment and subdued lending to households and corporations.

The economy is forecast to expand by 1.2 percent this year, according to the European Commission — the lowest rate of growth since 2001.

Overall, the economy has grown fast since Poland threw off communism 23 years ago and built a market economy. Joining the European Union in 2004 only added to momentum, and the country hasn't been in recession in 21 years.

Still, it has not been immune to the financial crisis in Europe.

The Polish central bank faced some criticism last year for moving slowly on interest rate cuts despite decelerating growth. But it has made monthly rate cuts since November, helped in part by a drop in inflation to 1.7 percent, below the official target of 2.5 percent.

Some economists said they were perplexed by the size of the cut.

"This has surprised us a lot, but we believe it is certainly the right thing for the Polish economy, which is likely to be helped by today's move," Danske Bank said in a note.

The central bank said it expects an improvement in economic activity in the coming quarters.