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Poland ends easing cycle with deeper-than-expected rate cut

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* Central bank cuts rates by 50 bps, more than expected

* Bank says rate-cut cycle is over

* Zloty gains after announcement that easing finished

* Falling consumer prices, ECB’s QE key reasons for cut

By Pawel Florkiewicz and Marcin Goettig

WARSAW, Mar 4 (Reuters) – Poland ended its monetary-easing cycle on Wednesday with a deeper-than-expected rate cut intended to curb deflation and prevent excessive zloty gains as the euro zone begins a massive stimulus programme.

The central bank’s Monetary Policy Council cut the benchmark rate 50 basis points to 1.50 percent, a record low. Most analysts polled by Reuters had expected a 25-basis-point reduction.

The zloty weakened after the decision, then reversed losses and gained up to 0.9 percent after the bank said its easing cycle was over.

“There is never a situation that the promise of the MPC in any country is carved in stone,” Governor Marek Belka said. “But taking into account the current economic situation … I cannot see room for further rate cuts and expectations thereof.”

Belka said the European Central Bank’s bond-buying programme was one factor leading to the reduction.

“If a major currency … is a subject to a quantitative easing at a significant scale, then one can expect appreciation pressure at currencies surrounding the euro,” he said at a conference following the decision.

Poland has cut its benchmark interest rate by a total of 325 basis points since late 2012 to spur its economy, the largest in central and eastern Europe.

The cut brings Polish rates closer to the level in the euro zone, the Czech Republic and the United States, all of which have rates near zero.

Belka said the 50-basis-point cut was backed by a solid majority of the nine council members, eight of whom end their term early next year. Belka’s term ends in June 2016, but unlike other members he may be re-appointed for a second term.


The Council also announced on Wednesday its new tri-annual economic forecasts, which slashed its forecast for 2015 and 2016 inflation but raise its expectations for economic growth.

The economy is now expected to grow about 3.5 percent this year, up from 3.3 percent last year. Many analysts expect new European Union development funds to further support Poland’s economy this year.

A drop in oil prices caused Polish consumer prices to fall an annual 1.3 percent in January, further away from the bank’s plus 2.5 percent target. But Poland’s relatively low private and public debt has kept falling prices from weighing on economic activity.

Data released on Monday showed Polish manufacturing continued to expand in February. Employment rose at its second-fastest level since 1998.

The unusual mix of deflation and growth led to disagreements in the Council on the need for easing earlier this year. Tensions were aggravated by secretly taped recordings revealed last year in which Belka used expletives to describe MPC members.

For Belka’s highlights, statement go to: (Additional reporting by Pawel Sobczak and Jakub Iglewski; Writing by Marcin Goettig; Editing by Larry King)

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