Poland: Central Bank tightens monetary policy in October
At its meeting on 6 October, the National Bank of Poland (NBP) raised the reference rate by 40 basis points to 0.50%, which took market analysts by surprise. The NBP also raised the lombard rate to 1.00% and the rediscount rate to 0.51%, but kept the deposit rate at 0.00%. Moreover, the Bank removed the reference to continued purchases of government bonds via its quantitative easing program, indicating that it has paused its purchasing activity.
The NBP’s decision came amid rising price pressures, with inflation hitting an over 20-year high of 5.9% in September. 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.
In its communiqué the NBP offered no explicit forward guidance, with focus remaining on the inflation and GDP report due to be released in November as a guide to further short-term changes in monetary policy. Looking ahead, while some panelists see rates being held, the majority see further increases of between 25–50 basis points by year-end.
Regarding the outlook, analysts at ING see rates being increased again this year, commenting:
“We believe that the [NBP] will continue with hikes. Even if such steps do not quickly have a tangible impact on mitigating effects of supply-regulatory shocks, they may reduce the rise in inflation expectations and the risk of a wage-setting/price-setting loop. They would also prevent somehow asset bubbles. In addition, due to the reaction of the zloty, there should be less inflation imported from abroad. Rising inflation recently is a global problem, not only a Polish one. We expect that at the end of next year, rates in Poland may be rather around 2%, i.e. higher than 1.5% before the pandemic.”
The next monetary meeting is scheduled for 3 November.