* Bank cuts key rate by 50 bps to 3.25 pct
* Move surprises markets, irks some economists
* Businesses welcome easier policy
By Pawel Florkiewicz and Stanislaw Skrzydelski
WARSAW, March 6 Poland's central bank closed a
five-month easing cycle with a surprise half point interest rate
cut on Wednesday, after government criticism that it had failed
to combat a slowdown in the EU's biggest eastern economy.
Following sharp words from Prime Minister Donald Tusk that
it has been too slow in freeing up credit, the bank also slashed
its inflation forecast and said this year's best-case growth
outlook was weaker than previously thought.
The decision brought the key rate to a record
low of 3.25 percent, giving hope to businesses and consumers
struggling against unemployment at a six-year high and an
unprecedented fall in consumption at the end of last year.
"Please treat it as a full-stop at the end of a series of
cuts," central bank Governor Marek Belka told a news conference.
None of the 29 analysts polled by Reuters had predicted the
half-point cut, a majority having expected a quarter-point
Several economists said the decision had shown rate setters'
fears over slowing growth and rising unemployment had trumped
concerns inflation could reignite and pose risks to stability.
Some vented frustration, however, by saying board members,
including Belka, had spent the last few weeks arguing the easing
cycle could at least pause, catching the market off-guard.
"This is a big surprise, given the caution and end-of-cycle
language being used at the last meeting," said Peter Attard
Montalto, an analyst at Nomura.
Montalto said Wednesday's decision showed "poor credibility
and disastrous communications" by the bank. "None of the recent
rhetoric (among rate setters) pointed to this at all," he added.
Finance Minister Jacek Rostowski, who led the attacks on
central bank reluctance to cut borrowing costs, said the bank
was now being too quick to adapt a 'wait-and-see' approach.
"It's a shame, because Poland still has the highest real
rates in the European Union," he said on his Twitter account.
"Why do Polish entrepreneurs have to pay more for credit than
everybody else in Europe?"
Facing a lower premium for holding Polish assets, investors
sold the zloty, initially knocking it 0.7 percent lower against
euro. Bond yields fell by 5 to 15 basis points across the curve.
Even following Wednesday's move, rates in Poland are the
EU's third highest after emerging members Hungary and Romania.
WAITING FOR RECOVERY
Fuelled by a domestic market of 38 million consumers whose
living standards are still catching up with those in Western
Europe, Poland has enjoyed two decades of growth and was the
only EU state to avoid contraction since 2008.
But a main driver - a five-year, 20 billion euro campaign of
road, stadium and other projects for the Euro 2012 soccer
tournament - dried up last year, causing construction to plummet
by almost a quarter and sending many builders into bankruptcy.
At the same time, Tusk's government has cut costs in an
effort to trim the budget deficit, while a recession in Poland's
main export market, the euro zone, has hit exports, triggering
waves of layoffs at companies such as carmaker Fiat.
Businesses welcomed the move.
"An economic slowdown is a good time to invest, and if there
is cheaper access to capital, it would be a sin not to take
advantage of it," said Eugeniusz Fengier, owner of Foster, an
electronic boiler components producer.
But, following a string of recent data suggesting the
economy would avoid recession and rebound in the second half of
the year, the bank introduced a new note of caution.
It said growth could reach a maximum of 2 percent this year,
down from a previous forecast of 2.5 percent.
It also cut its outlook on inflation to 1.3 to 1.9 percent
this year, significantly lower than its previous 1.8-to-3.1
percent view and in line with the government's insistence that
it would fall far below the central bank's 2.5 percent target.
Analysts said they now expected the bank to hold rates in
the coming months. But some argued the half-point cut had come
too late and it would be tough to judge the next move.
"Poland's economy needs all the stability and predictability
it can get from policymakers right now. A confusing monetary
policy makes matters worse," said Nicholas Spiro, the head of
London-based Spiro Sovereign Strategy.