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Thursday, January 31, 2008

Polish Central Bank Raises Rates

Poland's central bank raised its benchmark interest rate by quarter point to 5.25 percent yesterday, its fifth increase since April, to combat rising inflation, while the Federal Reserve has cut U.S. borrowing costs by 1.25 percentage points this month to prevent a recession in the world's largest economy. The European Central Bank has kept its main refinancing rate at 4 percent since June.

Poland's central bank is likely to continue to raise rates in the coming months given the need to cap wage-related inflationary pressures.

The Polish zloty rose the most in a week against the euro after the central bank decision. Poland's currency climbed to its highest level since Jan. 24 after policy makers lifted the seven-day reference rate to 5.25 percent. The zloty was also buoyed as a report showed the $339 billion eastern European economy expanded by its fastest pace in a decade last year, supporting the case for more rate increases.

Inflation will remain above its target of 2.5 percent plus or minus 1 percentage point, boosted by food and oil costs, the central bank forecast. Policy makers next decide on interest rates on Feb. 27.

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