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* Rate-setters drop flat rate forward guidance
* But governor Belka says rate cut in September unlikely
* Sees economy expanding at steady pace ahead
* CPI may fall below zero in coming months
* Belka repeats will not resign because of leaked tapes
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By Pawel Sobczak and Marcin Goettig
WARSAW, July 2 Poland's central bank dropped its
commitment on Wednesday to keeping interest rates on hold at 2.5
percent until the end of the third quarter but said it was
unlikely a cut would come as soon as September to lift flagging
Its decision to drop the forward guidance had been widely
expected, as Polish real interest rates are now among the
highest in Europe and the economy, emerging Europe's biggest, is
seen at risk of tipping into deflation.
But markets had been expecting a firmer message on the
timing of cuts from the central bank. Bond yields rose after the
bank said a September cut was unlikely. The yield rise was a
signal markets were trimming their bets for rate cuts ahead.
The rate-setting Monetary Policy Council (MPC) kept
benchmark interest rates at their current record low of 2.50
percent, in line with analysts' expectations.
Speaking to reporters about the removal of forward guidance
from the MPC's monthly statement, central bank governor Marek
Belka said: "That obviously does not mean that one should expect
rate cuts in September."
"We view the likelihood of such a move as low, however it
does mean that in the coming months we can expect all possible
actions, depending on the economic situation."
The bank said it had revised down its forecast for inflation
over the next three years. It now sees inflation at about 0.3
percent in 2014 compared to 1.1 in the bank's March projection.
The bank's inflation target is 2.5 percent.
"In the opinion of the Council, in the coming months
inflation will remain very low and may temporarily fall below
zero," the bank said in the statement.
It slightly raised its forecasts for economic growth this
year, to 3.7 percent from 3.6 previously, despite a string of
disappointing data in the last few weeks.
Ten-year bond yields and forward rate agreements
rose by about 5 basis points after Belka's comments.
Economists polled by Reuters are not expecting the bank to
ease policy this year, whereas markets are pricing in 30 basis
points of easing over the next five months.
Belka said he would not resign over leaked recordings of a
private conversation he had with the interior minister that were
published by news magazine Wprost in June, triggering a major
In the recordings, the two men discussed how the central
bank might help the government avoid election defeat and ways to
put pressure on a businessman.
Both have said their comments were about hypothetical
scenarios only and were taken out of context, and that they had
not broken any law.
"I regret very much that public harm occurred as a result of
my fateful conversation. I am very sorry with regards to my
institution and my colleagues," Belka said on Wednesday.
"I will try, together with the MPC, to rebuild the trust in
relation to me personally, not the bank, which was badly
In the leaked conversation, Belka had used an expletive to
describe the council and made derogatory remarks about one of
its members, Jerzy Hausner.
Belka told the news conference that Hausner had attended
Wednesday's MPC meeting and had made a statement on the tapes
affair which the rate-setter did not intend to make public.
The governor said there had been no suggestion that Hausner
or any other rate-setter planned to resign from the council over
Belka's leaked remarks.
(Reporting by Pawel Sobczak; Writing by Marcin Goclowski;
Editing by Marcin Goettig and Catherine Evans)