(Updates with context, quotes, market reaction)

By Anna Koper and Marcin Goclowski

WARSAW, March 17 (Reuters) – Poland’s central bank cut its benchmark interest rate to 1.0% from 1.5% on Tuesday in response to the coronavirus pandemic, its first reduction since March 2015, as it expects inflation to fall below the monetary policy horizon’s target.

The move in Warsaw highlighted the seriousness of the threat facing Poland, as rates in central Europe’s largest economy have been on hold since March 2015 and central bank governor Adam Glapinski had until recently said that he expected no change until 2022.

But on Friday he acknowledged the bank’s Monetary Policy Council (MPC) should lower borrowing costs to protect the economy against the effects of the coronavirus.

“The MPC’s actions will limit the negative economic consequences of the coronavirus spread and in the further perspective will help support the revival of the country’s economic activity,” the central bank said.

“Current forecasts point to the increased probability of a faster-than-expected drop in CPI than the March forecast called for and the probability of inflation settling below the central bank’s goal.”

Poland has confirmed 221 cases of coronavirus and five deaths as of Tuesday. The pandemic has hammered its financial markets and forced authorities to shut schools, restaurants and bars and the country’s borders.

The central bank also cut its lombard rate to 1.50% from 2.50%, and the rediscount rate to 1.05% from 1.75%.

The bank’s Monetary Policy Council had refused to move despite calls from some quarters to hike rates in the face of surging inflation. February CPI came in at 4.7% year-on-year, its highest since November 2011.

The cut came as central banks around the world took action to support a global economy which has been rocked by the impact of the coronavirus pandemic, making emergency rate cuts and offering cheap dollars.

“I think that’s it, as far as conventional monetary policy is concerned. Now the ball is on the fiscal policy side,” Piotr Bartkiewicz, an economist at mBank said.

Warsaw’s WIG 20 index, which had performed stonily during the entire session, in sharp contrast to regional peers, held on to its gains and was up 6.64% at 1541 GMT.

The zloty, which had been down over 1% earlier in the session, firmed to trade down 0.37% against the euro on the day at 4.4570.

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