By Marcin Goettig and Kuba Jaworowski
WARSAW, March 23 (Reuters) - Poland's central bank is poised to cut interest rates by 25 basis points on Wednesday as the economy rapidly weakens, a Reuters poll showed, but fears about the stability of the zloty are preventing a larger reduction.
Twenty three of 27 analysts canvassed late last week said they expect the bank's Monetary Policy Council (MPC) to reduce rates by 25 basis points to 3.75 percent, an all-time low, while three expect rates to stay flat and one forecast a 50 basis point cut.
In a previous poll published on March 9, analysts had also predicted the bank would cut by 25 basis points this month.
In February industrial output tumbled 14.3 percent year-on-year and analysts said this showed the European Union's largest ex-communist economy was in for a sharp slowdown.
"The economy is slowing sharply and future inflation prospects are favourable. The inflation target is not endangered. That is why the central bank can afford to cut rates," said Piotr Bujak, senior economist at Bank Zachodni WBK.
But the zloty's steep depreciation against the euro will encourage the MPC to act more cautiously now in cutting rates, analysts said, after a monetary easing campaign already totalling 200 basis points since last November.
"The MPC is very sensitive about the currency... The situation (on the FX market) is too fragile to cut rates by more than 25 basis points in March," said Pasquale Diana, economist at Morgan Stanley.
The zloty has shed about a third of its value against the euro since it hit an all-time high last July.
Both consumer and producer prices rose in February, to 3.3 and 5.4 percent respectively, but analysts said this was mainly due to regulated price rises and a weakening of the zloty.
Jan Czekaj, a key swing voter on the MPC, said last week the consumer price index may ease to the central bank's 2.5-percent target in the middle of 2009.
Analysts' forecasts for central bank key rate:
March 2009 April 2009 Dec 2009 MEDIAN 3.75 3.50 3.25 AVERAGE 3.77 3.61 3.20 MINIMUM 3.50 3.25 2.50 MAXIMUM 4.00 3.75 3.75 (Writing by Kuba Jaworowski; Editing by Toby Chopra)