The Polish economy grew at a slower annual pace in the fourth quarter after domestic demand eased, giving policy makers room to hold off on raising interest rates, Bloomberg reported.

Gross domestic product expanded 6.1 percent in the final three months of 2007, the Central Statistical Office in Warsaw said today, exceeding the 6 percent median estimate of 21 economists in a Bloomberg survey. Fourth-quarter growth was the slowest last year and down from 6.4 percent in the third quarter.

Polish growth is lagging behind the 6.9 percent expansion in neighboring Czech Republic and the 14.1 percent growth rate in Slovakia. That may help the central bank to leave borrowing costs unchanged until they judge whether two interest rate increases this year were enough to bring inflation under control.

The fourth-quarter data shows the pace of growth in consumption is slowing, most probably due to accelerating inflation, Deputy Finance Minister Katarzyna Zajdel-Kurowska said in an e-mailed statement today.

Domestic demand grew 6.2 percent, while consumer demand increased 3.8 percent. Construction was up 8.8 percent and production grew 7.9 percent, the statistics office said.

It estimated last month that full-year GDP growth reached 6.5 percent in 2007, the fastest pace in a decade. The government predicts 5.5 percent growth this year.

The central bank's quarterly forecast released today showed the inflation rate may rise to 4.7 percent after reaching a three- year high of 4.3 percent in January.

Halina Wasilewska-Trenkner, a member of the Polish central bank's rate-setting body, said today in a radio interview that as many as three interest rate increases may be needed should the situation remain unchanged.

The zloty traded at 3.5233 per euro at 11:10 a.m. in Warsaw, down from 3.5130 yesterday. The yield on the government bond maturing in April 2012 rose slightly to 6.184 percent.