UPDATE 2-Polish rates may be cut to below 3 pct-c.banker

Poland's central bank should cut interest rates further, possibly to below 3 percent, as economic conditions deteriorate and inflation keeps falling, key Monetary Policy Council member Jan Czekaj said on Monday.

In response to the sharply slowing economy, easing inflation and the global crisis, the central bank began to lower borrowing costs in November 2008 and has reduced its benchmark rate three times by a total of 175 basis points to at 4.25 percent.
he finance ministry said on Monday it expected price growth to have eased to 3.2 percent in January, from 3.3 percent in December -- moving closer towards the bank's 2.5 percent target.

'I believe that there should be more rate cuts fairly quickly,' Czekaj told daily Rzeczpospolita in an interview released on Monday.

'Maybe the proper level for the (key) rate would be 3.5 or maybe 3 percent ... If the economy will be growing slowly it cannot be excluded that we will need to lower the rate to below 3 percent.' Czekaj is a key swing-voter on the 10-strong MPC.

He also said that he saw no reason for delaying or dropping the government's ambitious plans for euro adoption in 2012 because of the sharp global and domestic economic slowdown.

'There is no such need,' he said. '...ERM 2 entry could calm the situation on the currency market.'

Many analysts say that pushing ahead with euro adoption in 2012 could be too risky because high market volatility and the global crisis would make it harder for the zloty currency pass one of the entry tests, spending two years proving its stability in the pre-euro ERM 2 currency grid.
Analysts expect more interest rate cuts but remain split on where the key rate will end this year and how low it will fall in this easing cycle. The median forecast in the latest Reuters poll places the key rate at 3.25 percent in December.

'There are objective conditions for easing monetary policy,' Czekaj said.

Although the Polish Purchasing Managers' Index (PMI) rose to 40.3 points in January, the first rise in the index since February 2008, it is still well below the 50 growth/contraction divide, showing the manufacturing sector remains weak.

'Overall, the first batch of 2009 PMI data point to further aggressive rate cuts by the central bank in the first quarter,' said Trevor Balchin, economist at Markit Economics, which compiles the PMI data. 'Inflation concerns have eased despite the falling zloty, as the PMI showed further falls in price pressures in manufacturing.'

Poland's gross domestic product (GDP) growth in 2008 eased to 4.8 percent, from 6.7 percent in 2007, preliminary statistics office estimates showed last week, and some analysts said the sharp slowdown in investments last year indicated more trouble ahead for the Polish economy.
Source:By Karolina Sowikowska,Ruth Pitchford,

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