Poland: Central Bank unexpectedly raises interest rates in May
May 11, 2011
At its latest monetary policy meeting held on 10-11 May, the Central Bank lifted rates by 25 basis points to 4.25%, in a move that surprised the market. The decision marks the third consecutive meeting in which the Central Bank has tightened the reins after it began to withdraw monetary stimulus from the economy in January 2011. The Bank justified the rate hike by pointing to increasing inflationary pressures as well as the buoyancy of the domestic economy, supported by a healthy German economy. Although the global economy slowly recovers, the Bank stressed that the economic outlook is still uncertain due to the loose monetary policy of major central banks in developed economies, fiscal imbalances in the Eurozone periphery and the continued political turmoil in the MENA region. The hawkish stance of the Monetary Policy Council (MPC) aims to counter price pressures stemming from higher food and oil prices. In March, inflation jumped to 4.3%, exceeding the 1.0 percentage point tolerance margin of the Central Bank's 2.5% target. Policymakers warned that ?in the medium term, continuing economic recovery in Poland together with further employment growth may gradually increase the wage pressure, and, in consequence, may cause stronger inflationary pressure to persist?. More recent CPI data from April confirm the cautiousness of the Central Bank, with inflation increasing to 4.5%.