UPDATE 1-Polish inflation slows but central bank unlikely to cut rates

Fri Dec 13, 2013 9:47am EST

Related Topics

* Polish CPI eases to 0.6 pct, defies forecast pick-up

* Policymaker says more rate cuts would be a mistake

* Analysts expect c.bank may keep rates flat for longer

* Bond yields fall (Adds central bank rate-setter, details)

By Stanislaw Skrzydelski

WARSAW, Dec 13 (Reuters) - Polish inflation unexpectedly slowed to a five-month low in November, but analysts and policymakers said the central bank would stick to its pledge to keep rates flat until at least June next year.

The consumer price index (CPI) rose 0.6 percent last month after a 0.8 percent increase in October, the state statistics office said. Analysts in a Reuters poll had expected inflation to accelerate to 0.9 percent in November.

It has remained below the central bank's 2.5 percent target since November last year and according to the latest forecasts from the bank inflation is unlikely to reach the target in the next two years, and possibly longer.

Separate data released on Wednesday showed M3, a broad aggregate of money supply, grew by an annual 5.7 percent, below a forecast 6.4 percent rise.

"Rate cuts would be a bad signal for markets," central bank policymaker Andrzej Bratkowski told TVN CNBC broadcaster.

The bank has held interest rates at a record low 2.5 percent since July and says that while the Polish economy is still growing below potential it is gradually recovering.

Bratkowski added that more easing could later force the central bank's Monetary Policy Council to raise rates in a hurry as he saw economic growth accelerating to almost 3 percent in 2014 and 4 percent in 2015.

A breakdown of the inflation figure showed a monthly drop in communications, clothing and transport prices pushed inflation lower last month.

The central bank has pledged to keep its key rate at 2.5 percent until at least the end of June 2014.

Last week, the bank said it would stick to its plan, resisting the temptation to match monetary easing in the euro zone, Hungary and the Czech Republic.

"Rate cuts remain unlikely because of positive growth momentum," said Daniel Hewitt, an economist at Barclays in London. "This low reading likely puts rate hikes even further away."

The data pushed bond yields lower by 3-5 basis points across the curve as traders priced in a delay in expected tightening. (Writing by Marcin Goettig; Editing by Susan Fenton)

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