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Wednesday, March 26, 2008

Poland's Central Bank Raises Interest Rates to 5.75%

Poland's central bank today raised its benchmark interest rate by a quarter of a percentage point to its highest level in three years in an attempt to stop inflation getting out of control. The Narodowy Bank Polski lifted the seven-day reference rate to 5.75 percent, the third consecutive increase and the seventh in the past 11 months.

The rate-setting Monetary Policy Council has so far failed in its bid to contain price growth after the inflation rate breached the upper end of its 1.5 percent to 3.5 percent target range in November and rose to a three-year high of 4.2 percent in February. Other statistics, including industrial output, retail sales and wages, have all boosted concern that inflation may well be set to accelerate further.

``The council sees inflation as more likely to remain above the target in the mid term and decided to raise key rates,'' the council said in a statement. ``The council will vigilantly observe wage growth and labor productivity. It will also monitor the exchange rate of the zloty and global economic trends.''

The zloty traded at 3.533 per euro at 3 p.m. in Warsaw, little changed from before the decision and down from 3.524 yesterday. Yield on the government's bond maturing in April 2012 was 6.139 percent, unchanged from just ahead of the announcement and up 3 basis points from yesterday.

The average corporate wage rose in February an annual 12.8 percent, the largest year on year monthly increase in almost eight years:

while industrial output growth, at 14.9 percent, was the highest in 14 months:

Todays retail sales data has also added to expectations that there may well now be further monetary policy tightening in the pipeline, since the statistics office reported that retail sales in February rose an annual 23.8 percent the highest in almost four years.

Poland's 625 billion euro economy expanded 6.5 percent last year, the fastest pace in a decade, and may have grown by about 6 percent in the first quarter of this year, according to recent estimates from Katarzyna Zajdel-Kurowska over at the Finance Ministry.

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