Poland’s central bank has sharply raised interest rates in a renewed effort to clamp down on a surge in inflation in the EU’s fifth-biggest state.
The 75 basis point increase — which was the second in two months and bigger than the 50 basis-point rise expected by economists — lifted the central European country’s benchmark rate to 1.25 per cent.
It comes amid mounting pressure on the National Bank of Poland (NBP) to take a more aggressive stance in dealing with inflation, which is at 20-year highs and eating into the spending power of less well-off Poles. Last month, year-on-year inflation in the country reached 6.8 per cent.
The NBP said the surge in inflation had been driven “to a great extent” by “external factors beyond the control of domestic monetary policy”, including commodity and energy prices, and disruptions to global supply chains.
However, it added that in combination with the Polish’s economy continuing rebound from the pandemic, there was a “risk of inflation remaining elevated in the monetary policy transmission horizon” and that it had therefore decided to act.
Underscoring the strength and durability of the recent surge in prices, the NBP raised its inflation forecast for 2022 from between 2.5 and 4.1 per cent to between 5.1 and 6.5 per cent, far above the 3.5 per cent upper limit of its target range.
The NBP’s decision follows rate increases by central banks in the Czech Republic, Hungary and Romania, as inflationary pressures rise across Europe. However, Christine Lagarde, president of the European Central Bank, has played down market expectations of a eurozone rate rise before the end of 2022.
Liam Peach, an economist at Capital Economics, said the larger than expected increase suggested that the NBP, which has long been among the most dovish in central Europe, had taken “its head out of the sand”.
“The National Bank of Poland’s decision . . . alongside the upwards revision to its inflation forecast suggests to us that the NBP is taking the fight against inflation much more seriously than we had thought,” he said.
“It seems to us that the dovish bias on the monetary policy committee — which had been the main obstacle to monetary tightening in Poland — is no longer a significant factor. That leaves the door open for the monetary policy committee to raise rates further in the coming months.”
Economists at UniCredit also forecast the NBP could raise rates further, arguing tight conditions in Poland’s labour market — unemployment stood at just 5.6 per cent in September — meant inflationary pressures were likely to remain in the medium term.
“Underlying inflation measured using weighted median inflation was outside the target range before the Covid-19 pandemic and has recently climbed to around 4.4 per cent, showing that broad-based price pressure in Poland remains strongest in central Europe,” they wrote.
“The NBP could take the policy rate to 2 per cent next year, with the pace and magnitude of hikes influenced by new appointments to the monetary policy committee.”
Source: Economy - ft.com
