As we expected, the Monetary Policy Council cut rates by 50
bps today. The intervention rate was cut to 8.50%. The council
thus stuck to the policy of small gradual steps, which was announced by governor Leszek Balcerowicz after the April session. We believe that given the failing hopes for significant
recovery of the Polish economy, the council might cut rates by
100 bps without endangering its inflation target. Therefore we
expect that the council will cut rates by further 50 bps in July.
Until the end of the year, the rates should be cut by total 200
bps.
We expect that today ’s decision will create further pressure on
the zloty to firm. The small scale of rate cut may provoke further pressure from
the government and the parliament and may inspire the MP ’s
to support the amendments of the Central Bank Act, which
would increase the number of MPC members and add the care
for economic growth to the central banks objectives. The
government spokesman said that the decision was too cautious
and inadequate to the state of the economy.
Konrad Soszynski,Kredyt Bank S.A.,Warsaw
Marek Fer, Investment Research, CSOB