Mar 4, 8:52 AM EST

Poland slashes interest rates to historic low of 1.5 percent to fight deflation risk

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WARSAW, Poland (AP) -- Poland's central bank has cut its key interest rate by half a percentage point to a historic low of 1.5 percent amid concerns over deflation, a sustained drop in consumer prices that can hurt the economy.

The National Bank of Poland's move to slash its reference rate surprised many given that most economists expected a cut of 0.25 percentage points.

The cut came even though the economy is growing at a healthy pace - it expanded 3.3 percent last year and is expected to grow at least 3 percent this year.

The country, however, faces the challenge of falling consumer prices, something that could threaten growth. In January the country had a negative inflation rate in January of -1.3 percent, well below the target inflation rate of 2.5 percent.

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