Warsaw - Poland's central bank slashed Wednesday its key interest rate by half a percentage point to a record low 2.0 percent in a move that took analysts by surprise.
“Having left interest rates unchanged for over a year, the National Bank (NBP) responded to the weakness of the latest inflation and activity data by easing monetary policy today,” said William Jackson, an analyst with the London-based Capital Economics said.
The decision, which comes into effect on Thursday, comes amid falling prices.
Consumer prices declined by 0.3 percent on an annual basis in August, after a 0.2 percent dip in July.
While the IMF said Tuesday that it expects Poland's economy to continue expand at strong rate, it pointed to market turbulence and a weaker recovery in the neighbouring eurozone that is flirting with deflation as the biggest risk to that forecast.
The NBP's cut was “larger than we, the financial markets and the consensus had all expected,” said Jackson.
Analysts had expected Poland to hold off on rate cuts until early next year.
“It's possible that the scale of today's rate cut means that the NBP is planning to be more aggressive than anticipated,” Jackson said.
“We suspect that today's cut probably is a one-off, but interest rates are likely to remain extremely low over the next couple of years,” he added.
Low interest rates encourage borrowing, thus spurring investment and consumption and supporting growth.
The country of 38 million people expects economic growth to pick up from 1.6 percent in 2013 to 3.2 percent this year, with the IMF forecasting the same growth rate. - Sapa-AFP