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Poland Monetary Policy November 2021

Poland: Central Bank hikes rates again in November

At its meeting on 3 November, the National Bank of Poland (NBP) raised the reference rate by 75 basis points to 1.25%, which was a larger hike than expected by market analysts. The NBP also raised the lombard rate to 1.75%, the rediscount rate to 0.30% and the deposit rate to 0.75%.

The NBP’s decision came amid rising price pressures, with inflation hitting an over 20-year high of 6.8% in October. While the Bank continues to mostly attribute this to transitory factors, it now sees inflation remaining elevated for longer than previously expected. As such, the NBP decided to hike rates to mitigate the risk of inflation staying above its 1.5%–3.5% target band in the medium term.

Informing the Bank’s decision to raise rates was the much-anticipated November inflation report, in which projections for the next few years were upgraded considerably. The NBP now sees inflation averaging 4.9% in 2021, up from 4.1% in the July projection, and rising to 5.8% in 2022 (July report: +3.3%). For 2023, the Bank sees inflation reducing to 3.6% (July report: +3.4%). In terms of GDP, growth prospects were raised to 5.3% in 2021 (July report: +5.0%), reduced to 4.9% in 2022 (July report: +5.4%) and downgraded to 4.9% in 2023 (July report: +5.3%).

In its communiqué the NBP offered no explicit forward guidance, but the hawkish tone from previous statements remained. As such, the majority of our panelists see another increase of between 25–50 basis points in the final meeting of the year, with further rate hikes penciled in for early 2022.

Regarding the outlook, Malgorzata Krzywicka at Erste Bank commented:

“The only certain thing is that the Central Bank will continue to increase interest rates in coming months. However, the size of the next hikes remains unclear. As noted by the governor, inflation should peak in January and should decrease thereafter. Hence, we expect the NBP to raise rates at each of next four rate setting meetings, given the schedule of inflation publications. The earliest inflation reading that might show a reversal of the upward trend is the February figure, which will be released in mid-March. We see the key rate at 2.50%–2.75% by the end of Q1 2022 and the key rate should peak at 2.50–3.00% by mid-2022. Nevertheless, the outlook remains highly uncertain and will strongly depend on short-term inflation developments.”

The next monetary meeting is scheduled for 8 December.

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