Poland slashes on signs of sharp slowdown

The cut leaves the key reference rate at 5%, its lowest level since December 2007. The majority of analysts had expected a half-point cut.

The central bank said: "A stronger-than-previously-expected slowdown in the global economy - in particular the recession in Poland's major trading partners - and consequently, the significant decline in domestic demand will contribute to further lowering inflation in Poland."

It added that flagging labour demand and tighter lending conditions would further subdue inflation, which at 3.7% for the year to November, is just above the 3.5% upper limit of the central bank's target band.

Poland's cut follows a half-point lowering to 10% by hard-hit Hungary on Monday. It is the third cut this month by Budapest, which was forced to hike rates by three percentage points to secure International Monetary Fund financing and shore up the forint.

The Polish central bank noted that the turmoil in global financial markets and increased risk aversion had "contributed to continued increased exchange-rate."

It further said that tools such as its cash-swap arrangement with the Swiss National Bank would be maintained into next year.

The Polish central bank chopped 150 basis points of the key rate in January 2001 when it stood at 11.5%.

Click here to read the Polish central bank's statement

Click here to view historical data on Polish interest rates

Click here to read Hungary's statement