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The Polish zloty has fallen nearly 3 percent against the euro since the Polish National Bank’s shocking decision to cut interest rates on Wednesday, highlighting the delicate balancing act central bankers face as they try to boost growth during the Inflation remains high.

Rate setters in Poland this week cut borrowing costs by 0.75 percentage points to 6 percent, a move three times higher than analysts expected, even though inflation is still at 10.1 percent.

A weak currency risks fueling inflation by increasing the price of imports and stimulating demand for exports.

Poland’s central bank governor Adam Glapiński said the decision was based on a “radically changed” economic outlook, with the prospect of a recession in Germany particularly worrying for Polish exports. He added that he expects inflation to fall to just over 8.5 percent in September and fall further as the economy weakens.

“Poland is connected by an umbilical cord to Germany, which is in a kind of stagflation,” said Gustavo Medeiros, research director at the Ashmore Group.

The German economy has deteriorated rapidly, with industrial production falling 0.8 percent in July, more than forecast, figures showed this week. Core inflation in Germany, which ignores volatile food and energy prices, has remained stubbornly above 5 percent since last October.

“Poland has tried to be more proactive and get ahead of what they see as a larger slowdown in growth,” said Aaron Grehan, head of hard-currency emerging market debt at Aviva Investors.

The move comes at a crucial time for the European Central Bank, which is considering whether or not to raise interest rates as it walks the fine line of containing rising prices while avoiding worsening the economic downturn.

The zloty’s fall could serve as a warning to other central banks as they start cutting interest rates.

“This is an extreme step,” said Salman Ahmed, global macro head at Fidelity International. “The signal they are sending to the market is that they will tolerate inflation.”

Some economists argued that Poland’s central bank had been unduly influenced by the goals of the ruling Law and Justice party, which faces parliamentary elections next month.

Currencies in the nearby Czech Republic and Hungary were also dragged down by Poland’s interest rate decision. However, the moves were more muted as analysts say these countries are less likely to trigger monetary policy shocks.

The Czech National Bank has kept interest rates at 7 percent since June last year and is expected to keep rates at its meeting this month. Overall inflation fell to 8.8 percent in July.

The Hungarian National Bank has gradually cut its interest rate from 18 percent to 14 percent since May as inflation fell from a peak of over 25 percent earlier this year to 16.4 percent in August.

Ahead of Poland’s interest rate decision, the strength of the zloty was seen as instrumental in reducing imported inflation. Grehan said it was unlikely the central bank would tolerate a rapid devaluation from here, but added that Poland had plenty of foreign reserves should it decide to intervene to support the currency.

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