Marek Belka, president of the National Bank of Poland Courtesy of World Economic Forum

The RPP's decision to cut Poland's main interest rate by 25 basis points for the third time in as many months came as no surprise to many economists, since inflation and economic activity have declined recently. Industrial and construction output have also remained weak over recent months and annual retail sales growth has continued to run below 3.5 percent. The RPP also points out that in recent months, household and corporate lending growth have continued to weaken.

It is hoped that the cut will support and stimulate economic activity, and eliminate the risk of inflation falling below target. In an official statement, the RPP did not rule out the possibility of further reductions in interest rates if the upcoming data confirm a lasting economic slowdown. However, Marek Belka, the president of the NBP said, "This round of cuts is drawing to an end." This suggested that the RPP was not certain to cut rates at its February meeting.

The announcement has further strengthened the złoty against the euro and the US dollar. Finance Minister Jacek Rostowski, hopes, however, that the RPP will continue to cut interest rates. "I'm happy with the RPP's decision, and I hope for further cuts in the upcoming months. Ending the round of cuts at this stage would be a serious mistake, and could have a negative effect on unemployment," read a press release from Mr Rostowski's office.

Some economists are not too bullish about further reductions. "I don't see a majority in the RPP that would want to cut interest rates more drastically than 25 basis points at a time. For many, the 4 percent level is a barrier that shouldn't be broken and they might oppose further and bigger cuts," Jarosław Janecki, chief economist at Société Générale told WBJ.

MM, JC