WARSAW, Poland – Poland's central bank kept its benchmark interest rate at a record low of 3.5 percent on Tuesday for the 17th consecutive month, in line with market expectations, to avoid a sharp appreciation in the currency.
Many economists are forecasting that the national bank will hold the reference rate unchanged at 3.5 percent until the end of 2010. However, a hike is expected at some point because the national economy is growing at an estimated 3.5 percent this year and is expected to pick up its pace even further next year.
There are fears that raising rates too soon could cause the currency, the zloty, to strengthen too much. A rate hike would likely attract a surge of capital from investors fleeing turmoil elsewhere and in search of higher returns as interest rates in many major economies remain extremely low.
That would push up the zloty and hurt Polish exporters who sell their goods in Germany and elsewhere.
In announcing its decision, the bank's monetary policy noted those factors. It also mentioned "the still limited inflationary and wage pressure in the Polish economy" as a reason for its decision to keep rates at what is a record low for Poland flat iron.
The ex-communist nation has shown strong economic growth since joining the European Union in 2004, and was the sole European country to avoid recession during the global downturn. However, it faces a number of challenges, perhaps the most troubling of them being a growing deficit. Business people also complain of the country's bad roads, which make it hard to transport goods, and stifling bureaucracy and regulations — a relic of the communist era.
Also Tuesday, Prime Minister Donald Tusk, the leader of the pro-business governing Civic Platform party, announced a government plan for a new law that would cut regulations and make it easier for entrepreneurs to start companies. The bill must still go to parliament.
(This version CORRECTS Corrects that interest rate has remained at the current level for 17 months, not 18.)
