Polish Central Bank Interest Rate Raised 3 Times by Total of 165 Basis Points in Final Quarter of 2021

December 8, 2021

Following up on hikes of 40 basis points in October and 75 bps in November, officials at the National Bank of Poland lifted the reference interest rate today by 50 bps to 1.75%. In so doing, the entire post-pandemic rate reduction in 2020 from 1.50% at the start of last year has been reversed and then some, demonstrating that it doesn’t necessarily take long to go from an ultra-accommodative rate level of 0.10% to a more normalized new level of 1.75%. The backdrop to this reversal has been an acceleration of Polish CPI inflation from 2.4% last February to 5.5% in August and a nearly two-decade high of 7.7% last month. The NBP’s Monetary Council released a statement noting that it is not the only monetary authority to begin normalizing policy and predicting that Polish inflation is likely “to remain at an elevated level also in the coming period. In a longer perspective, inflation will decrease, which will be supported by expected fading of some global shocks currently boosting price growth, as well as by an increase in the NBP interest rates. At the same time, amidst further economic recovery and expected continuation of favorable labor market conditions, as well as probably more lasting impact of external shocks on price dynamics, there persists a risk of inflation running above the NBP inflation target in the monetary policy transmission horizon.” More rate tightening is implicitly possible. GDP growth has been picking up momentum, accelerating from gains of 1.6% in 1Q to 1.8% in 2Q and 2.3% last quarter (and 5.3% compared to a year earlier). Monetary officials are not worried that the pace of rate restoration might unduly constrain future economic growth.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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