WARSAW, Jan 24 (Reuters) - Poland's retail sales recorded

their deepest fall in almost eight years in December, decreasing

2.5 percent on an annual basis, signalling that the slowdown in

the largest central European economy will be deeper than

expected.

The data increases the chances that the central bank will

continue with its monetary easing after it cut rates by 25 basis

points for the third consecutive month in January.

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KEY FIGURES:

RETAIL SALES (pct change) Dec 2012 Nov 2012

Year-on-year -2.5 2.4

Month-on-month 15.1 -6.4

UNEMPLOYMENT RATE

Pct of workforce 13.4 12.9

FORECASTS:

* Analysts polled by Reuters expected retail sales

to rise 1.4 percent year-on-year last month and unemployment

rate at 13.4 percent.

MARKET REACTION:

The Polish zloty fell 0.23 percent immediately

after the data was released, while bond yields decreased by 2

basis points across the curve.

ANALYSTS' COMMENTS:

PIOTR PIEKOS, ANALYST AT BANK PEKAO SA:

'December's reading of retail sales is its lowest dynamics

since April 2005 and the first drop in nominal terms since April

2010.

'December data on retail sales are an important test of

consumer confidence due to Christmas expenses that are made in

this period.

'Today's data increase the probability of an interest rate

cut already in February. The latest statements by MPC members

imply that they are willing to support a motion on another rate

cut already at the next MPC meeting.'

PETER ATTARD MONTALTO, ANALYST AT NOMURA

'Another December data shocker. Most of the weakness was

seen in durable goods categories. The real question now is if

this is a short and sharp slump or long and deep one.

'We are still in the former camp and would say again that

the Monetary Policy Council is expecting nasty fourth quarter

data with a recovery in the first half.

'The zloty's reaction, though, should temper the possibility

of rates moving too low, especially if this sort of weakening

continues.

'The real rate argument still stands, too, independent of

GDP. Our Q4 GDP forecast shifts down now to 0.7 percent, which

would bring in full year GDP at 2.1 percent. We see 2013 GDP at

1.7 percent with weak H1 and recovery in H2.'

BACKGROUND:

* Polish output plunges in December, more rate cuts seen

ahead

* Polish officials said weaker zloty would help economy

* Polish rate-setter Glapinski sees end of rate cuts

* Polish FinMin warns central bank against rate cut pause

* Poland cuts rates again but signals pause ahead

(Complied by Karolina Slowikowska; Reporting by Reuters Polish

bureau)

Keywords: POLAND SALES/

(karolina.slowikowska@thomsonreuters.com)(+ 48 22 653 97 25)(Reuters Messaging: karolina.slowikowska.thomsonreuters.com@reuters.net)

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