(Recasts, adds statement, analyst, other details)
By Karolina Slowikowska
WARSAW, Feb 25 (Reuters) - Poland's central bank cut interest rates by a quarter of a percentage point on Wednesday but said it was concerned about the zloty's weakness and ready to act in support of the currency.
The Monetary Policy Council's decision to trim the main interest rate to 4.00 percent, in line with market expectations, followed two hefty 75 basis point cuts in December and January sparked by a slowdown in Poland's once-booming economy.
Analysts said they expected further rate cuts in coming months. They had scaled back their expectations of a half a percentage point cut this week due to a slide in the zloty, down about 10 percent against the euro since the start of 2009.
"The zloty is currently weaker than the equilibrium exchange rate and does not reflect the relatively favourable condition and outlook for the Polish economy ... (The bank) may use instruments directly affecting the zloty exchange rate," the MPC said in a statement, without elaborating.
The central banks of Poland, the Czech Republic, Hungary and Romania took the unprecedented step on Monday of joint verbal intervention to support their currencies. That same day, Hungary's central bank kept its interest rates unchanged.
But analysts say the central banks need to back up words with action to underpin their currencies over the longer term.
MPC member Marian Noga told Reuters in an interview he did not exclude the possibility of central bank intervention on the currency market to help the zloty.
The zloty was down about 1 percent on the day at around 4.692 to the euro by 1700 GMT.
"The worse the economic data that comes the more obvious the need for monetary easing will become. However, the scope of easing will hinge on the situation in the FX market," said Michal Dybula, chief economist at BNP Paribas in Warsaw.
The Polish MPC statement noted that zloty depreciation hurt households and companies with foreign currency-demoninated debt.
FALLING INFLATION
A weaker zloty also carries inflationary risks, the statement said, adding that it expected CPI -- now at 3.1 percent -- to increase temporarily in coming months due to electricity and fuel price hikes.
However, the central bank said the overall inflation trend at a time of recession in Poland's main trade partners would remain firmly downward, providing scope for further rate cuts.
"We're still in an easing cycle. It's difficult to say what the benchmark for the main rate will be this year, but I personally think there's a need for one or two more rate cuts, small ones, of 25 basis points each, also because of the zloty," Noga, viewed as a hawk on the 10-strong MPC, told Reuters.
The bank is also considering lowering deposit and required reserve rates to boost market liquidity and free up credit availability, governor Slawomir Skrzypek told a news conference.
The bank's latest projections show inflation in a 2.5 to 3.9 percent range in 2009, down from 3.9 to 5.7 percent in the previous October forecast.
The latest growth forecast saw Poland's economy expanding by 0.3 to 1.9 percent in 2009, down from previous estimates and against the government's "worst case scenario" of 1.7 percent. Poland's economy grew by an estimated 4.8 percent in 2008.
In its statement, the MPC reiterated its support for putting the zloty into the European Exchange Rate Mechanism (ERM-2), the pre-euro antechamber, as soon as the government and opposition have reached political consensus on the issue.
Prime Minister Donald Tusk wants to take this step in the coming months, saying euro membership -- targeted for 2012 -- offers greater financial stability, but the main opposition Law and Justice party and President Lech Kaczynski say it would be a mistake to lock the zloty into ERM-2 at a time of turmoil. (Additional reporting by Kuba Jaworowski, Gabriela Baczynska and Pawel Sobczak) (Writing by Gareth Jones; Editing by Ruth Pitchford)