Warsaw/Berlin - Poland's national bank raised its benchmark interest rate by 25 basis points Wednesday amid growing inflation fears and a strong economic performance.

The decision brought borrowing costs in Central Europe's biggest economy to 6 per cent with the move in line with analysts' forecasts.

It was also the Warsaw-based monetary authorities' eighth rate increase since April last year when the cost of money stood at 4.0 per cent.

However since then, surging oil prices, a tight labour market and spiralling wages have helped to fuel inflationary pressures in Poland consequently raising the prospects of further hikes in the coming months.

Headline inflation in Poland rose by 0.8 per cent month-on-month in May to reach an annual 4.4 per cent, as a result pushing the inflation rate further away from the central bank's target of 2.5 per cent plus or minus one percentage point.

Although Poland's fast-paced economic growth is expected to slip back a gear this year, the country clocked up an annual first-quarter growth rate of 6.6 per cent as household spending and investment growth accelerated.

Moreover, Poland's unemployment rate dropped to 10 per cent in May from 10.5 per cent compared to April, official data released Tuesday said.

As a result, analysts believe that Poland's central bank's monetary policy policy might still have scope to push up rates further as the year unfolds.

Like other parts of Central Europe, overhanging Poland's economic outlook is a slowdown in the 15-member eurozone economy.

"The latest data have highlighted that the economy is cooling and the speed of the deceleration in coming months may take place at a faster rate than thought," economists with the investment house Dresdner Kleinwort wrote in a note to clients. "This could lead the MPC to maintain a cautious stance following the June hike."

"However, unless eurozone growth stalls abruptly in the very near term, the Polish economy should continue to show above-trend growth for most of this year, leading the monetary policy committee to deliver further tightening later this year," Dresdner Kleinwort said. (dpa)