Poland will need further rate cuts if the economic slowdown deepens, a hawkish Monetary Policy Council (MPC) member said on Wednesday and the central bank head said the next cut could come as early as January. On Tuesday Poland's MPC delivered its biggest rate cut in six years slashing its main interest rate by 75 basis points to 5 percent as the European Union's biggest eastern member fights the fallout of the global financial crisis.
"If it turns out that the worsening state of the global economy deepens and as a result (worsening state of the) Polish economy (deepens), then obviously further rate cuts would be needed," Dariusz Filar, seen as a hawk on the 10-strong MPC, told daily Dziennik in an interview.
The central bank governor Slawomir Skrzpyek speaking on TVN CNBC said Poland's monetary policy was in an easing cycle and the next rate cut was possible in January. He also said economic growth in the fourth quarter could drop to above 3 percent from 4.8 percent in the third quarter. Analysts expect Gross Domestic Product (GDP) growth to reach 5 percent in 2008 and slow to 2.8 percent next year as demand for Polish products wanes in the recession stricken euro zone - the country's main trade partner.
However domestic demand may also be hurt with retail sales in November rising just 2.7 percent year-on-year compared to earlier double-digit growth. In the statement following Tuesday's rate decision the MPC cited the slower pace of investment growth in the third quarter as a sign the economy was slowing "considerably".
Meanwhile, Poland's central bank cut interest rates by 75 basis points on Tuesday, more than expected and upping the pace of monetary easing as it bids to fend off the fallout of a deepening euro zone recession. The bank's second cut in two months brought its main rate to 5.0 percent - down a total of 100 basis points since November - as signs grew that the global financial crisis has halted Poland's three-year boom since joining the European Union.
The zloty currency, hit by the weaker retail sales numbers before the bank's statement, gained more than half a percent against the euro after the decision. Markets had initially expected a quarter point reduction in borrowing rates in the bloc's biggest ex-communist member, but shifted their forecasts to a 50 basis points cut on the back of an almost 10-percent slump in industrial output in November.
Retail sales data earlier on Tuesday were also below forecast, rising just 2.7 percent year-on-year in contrast to earlier double-digit growth, and analysts said the bank would need to act quickly and decisively to help growth.