Poland's Monetary Council unexpectedly raises interest rates

2021-10-06 16:57 update: 2021-10-12, 20:27
Fot. PAP/Darek Delmanowicz
Fot. PAP/Darek Delmanowicz
The Monetary Policy Council (RPP) at its one-day meeting on Wednesday in a surprise move hiked Poland's reference interest rate by 40 bps to 0.50 percent.

Wednesday's decision comes as Poland's inflation hit another 20-year high of 5.8 percent in September.

The National Bank of Poland's lombard rate was raised by 50 bps to 1.0 percent, the rediscount rate by 40 bps to 0.51 percent, and the discount rate by 40 bps to 0.52 percent, according to a central bank statement. 

At the same time, the deposit rate was left at 0.0 percent.  

Furthermore, the rate of mandatory reserves held by banks was hiked from 0.5 percent to 2.0 percent. 

Back in March 2020, the RPP cut the mandatory reserve rate from 3.50 percent to 0.50 percent and set interest on mandatory reserves at the reference rate. 

According to the rate council's statement, the hikes were necessary to fend off the risk of inflation persisting above the mid-term target. 

Even though the impact of some supply-side factors currently increasing inflation will fade next year, the rise in global prices for both energy and agricultural commodities seen in recent months may still increase price growth in the coming quarters," the statement said.

"Amidst probable further economic recovery and favourable labour market conditions, inflation may remain elevated longer than hitherto expected," it added.

"Such a situation would generate a risk of inflation staying above the inflation target in the medium term," it said. 

At the same time, according to the statement, the National Bank of Poland may continue to use foreign exchange interventions and other instruments provided for in the Monetary Policy Guidelines. The time and scale of the activities will depend on market conditions, it added.

None of the 20 analytical centres polled by PAP Biznes before the October meeting of the Council predicted that the RPP would raise the interest rate this month. 

Between March 17 and May 28, 2020, the Monetary Policy Council cut the reference rate three times by a total of 140 bps to 0.10 percent to offer support for the economy during the crisis caused by the first coronavirus wave. The Council's majority had been firm in maintaining rate stability ever since. (PAP)