MPC slashes borrowing rate to new record low

photo - Glow Images/East News

The reference rate was cut from 2.50 percent, set in July 2013, to 2.0 percent.

The NBP's deposit rate was left unchanged at 1.00 percent, rediscount rate was cut 0.5 percentage point to 2.25 percent and the lombard rate was slashed by 1 percentage point to 3 percent.

NBP president Marek Belka said at a press conference after the decision that the council was not unanimous in its opinion that rates should be lowered, however.

He added that further rate cuts in the coming months could not be ruled out.

The MPC felt it necessary to make a deep cut to the borrowing rate after GDP growth fell to 0.6 percent in the second quarter from 1.1 percent in the first.

Analysts expect growth to slow further in the third quarter.

Economists had widely expected the council to cut rates, due to lower than forecast GDP growth and CPI deflation recorded in the past months, though the extent of the cut took some by surprise on Wednesday.

For consumers, the decision means lower interest on bank credit, both on long-term loans, including mortgages, and consumer loans, which relate to the lombard rate.

As Adam Czerniak, economic analyst at Polityka Insight, told Polish Radio, the maximum interest on consumer loans will now fall from 16 to 12 percent.

Because the deposit rate was left unchanged, the interest on customers deposits in banks should not decline, Czerniak also said.

Małgorzata Krzysztoszek-Starczewska from employer group Lewiatan added that lower interest rates may also encourage businesses to take out more loans, as they have recently been reluctant to do so. (kw/pg)