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Polish March Industrial Output Drops More Than Expected

April 18 (Bloomberg) -- Polish industrial output fell more than economists expected in March, adding to arguments for the central bank to keep cutting interest rates.

Production dropped 2.9 percent from a year earlier, after decreasing 2.1 percent in February, the Central Statistical Office in Warsaw said today. The median estimate of 32 economists in a Bloomberg survey was for a 2.2 percent contraction. Output rose 9.2 percent from the previous month.

The Polish central bank left its benchmark seven-day rate unchanged at 3.25 percent for the first time in five months on April 10, as policy makers predicted record-low borrowing costs will reinvigorate the European Union’s largest eastern economy. While the bank projects a “gradual” recovery, a contraction in manufacturing deepened last month while retail sales fell in February and unemployment rose to a six-month high.

“This confirms the economy is slowing down quite fast and that the Monetary Policy Council has been wrong in its reluctance to ease,” Lars Christensen, chief emerging market analyst at Danske Bank in Copenhagen, said by phone. “It should give more ammunition for the doves on the MPC and we think they’ll cut rates next month.”

Yields Drop

The zloty strengthened to 4.1127 per euro at 2:20 p.m. in Warsaw, extending its gain to 0.1 percent on the day. The yield on the 10-year government bond fell two basis points to 3.437 percent after the data release, bringing its decline to six basis points from yesterday.

Poland’s central bank has delivered five rate cuts since November in a bid to stave off the country’s deepest slowdown in 12 years. Inflation slowed to 1 percent in March, the second month the rate undershot the central bank’s minimum tolerance level of 1.5 percent.

While the central bank’s March staff projections call for domestic demand to recover, doubling economic growth to 2.6 percent next year, European Central Bank President Mario Draghi said this month that risks remain on the downside for the euro area, where Poland sends 52 percent of its exports.

Producer prices fell 0.6 percent last month from a year earlier, the statistics office said today in a separate report. That compared with a median estimate for a 0.4 percent decline in a Bloomberg survey of 25 economists. Producer prices dropped 0.2 percent from February.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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