The decision was made on Tuesday that interest rates would be lowered by 25 basis points, which seemed like a surprise to many, who expected a plunge by 50 basis points. The reaction of the US Dollar was instantaneous, which increased in value just after the announcement. This reaction continued to the end of the week with further data providing the Dollar with more strength. Such data included the surprising increase of the PPI by as much as 3.2% in November against an expected increase of 1.5%, the increase of the CPI by 0.8% in November against an expected increase by 0.6%. Both of these factors leave investors with the question to whether rates would be cut once more in the near future with the risk of growing inflation.

The Polish economy also awaited significant information with regard to the CPI, which increased by 3.6% in November against an expected increase by 3.4%. This is a signal that will probably drive the Monetary Policy Council to increase rates during the next year to a rates even higher than 5.5%. An answer to this will probably be produced at the beginning of 2008. As to next weeks events, then I believe that investors will experience a calm week with the probability of the slight weakening of the Zloty against both the Dollar and the Euro.

Omar Arnaout