June 18, 2020 / 12:58 PM / 18 days ago

UPDATE 1-Polish cenbank thinks rate cut limits stronger zloty risk, minutes show

(Recasts with zloty comments, adds details)

WARSAW, June 18 (Reuters) - Most members of the Polish central bank’s Monetary Policy Council (MPC) thought that cutting rates at its May 28 sitting would limit the risk of further appreciation of the zloty currency, minutes from the meeting showed on Thursday.

The zloty gained over 2% in May, with traders and economists saying at the time that investors were exiting positions against the zloty, triggering stop losses amid optimism over the economy and expectations the bank’s easing cycle had ended.

However, at its May 28 sitting, the MPC took economists by surprise, cutting the cost of credit by 40 basis points to 0.1%. Since the coronavirus reached Poland in March, the central bank has cut rates three times by a total of 140 basis points.

“...further appreciation of the Polish zloty... would strengthen in procyclical fashion the negative impact of the sharp fall of external demand on exporters’ income and, consequently, negatively affect activity and employment in the Polish economy,” the minutes said.

The minutes also said that further zloty appreciation would increase the risk of deflation.

The minutes showed that most of the MPC members thought a rate cut would limit the risk of inflation falling below its target. The central bank targets inflation of 2.5%, plus or minus one percentage point

The minutes also showed that some MPC members thought the rate should remain unchanged, but did not give numbers.

Earlier on Thursday, Polish Finance Minister Tadeusz Koscinski said on Thursday the zloty is currently too weak, causing it to strengthen. (Reporting by Alan Charlish, Anna Koper and Pawel Florkiewicz; Editing by Agnieszka Barteczko and Andrew Cawthorne)

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