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Wednesday, April 30, 2008

Poland's Central Bank Holds Rates

Poland's central bank left its benchmark interest rate unchanged today, as policy makers seek signs the economy is slowing and argue that the zloty is strong enough to tame inflation for the time being. Rate setters held the seven-day reference rate at 5.75 percent.

The 10-member Monetary Policy Council have lifted borrowing costs seven times in the past year to counter the effect of rising wages and strong consumption. Policy makers' efforts to bring the inflation rate, at 4.1 percent in March, back to within its 2.5 percent goal may be aided by slowing retail sales and industrial output, but we need to wait and see I feel.

The zloty traded at 3.453 per euro after the decision, little changed from 3.449 in the morning and up from yesterday's close of 3.453. Yield on the government's two-year bond fell to 6.169 percent from 6.178 percent before the decision.

Average corporate wages rose an annual 10.2 percent in March, below the central bank's forecast, while the 15.7 percent annual advance in retail sales was the slowest in three months. These are still strong numbers however. Industrial output on the other hand rose an unexpectedly weak 0.9 percent. This may well be an impact of the rising zloty on the relative prices of home grown output.The zloty has gained 4.2 percent against the euro and 10.3 percent against the dollar this year so far, raising concerns that it may hurt exports and affect growth.

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