The Monetary Policy Council (RPP) has raised interest rates by 75 basis points. This is a small increase, compared to the market expectations that the rates would rise by 100 points, which was widely believed to be the RPP’s response to the surprising increase in inflation in April. Inflation in Poland in April was 12.3%, the highest since 1998.

Apart from inflation, an additional argument for a larger hike is also other data from the economy. Average wages in April increased by 12.4% and industrial production by 17.3%. This shows how the Polish economy accelerated and at the same time creates a risk of inflation persistence, which the MPC wants to avoid by all means.

Mateusz Urban, an economist at Oxford Economics, estimates that the concerns about the deterioration of the situation of borrowers may have influenced the lower rates than expected.

“A lower rate than expected strengthens my conviction that the RPP will prefer to hit lower, but will keep rates at the target level for longer. Their reasons are probably growing concerns about the economic slowdown and the situation of borrowers”, wrote Urban on Twitter.

The May decision of the Council does not end the cycle of rate hikes and in months to come, the RPP will have to make similar decisions. Bank Millennium economists are pointing to unfavourable inflation outlook combined with good data from the Polish economy, which will be the most important arguments for the RPP in the coming months.

Rafał Benecki, the chief economist of ING Bank, emphasizes that the government’s budget policy is becoming more and more expansionary, and the program of aid for borrowers worked out by the government, additionally weakens the impact of interest rate increases.

“Therefore, we believe that there will be taken further similar decisions, in our opinion the target rate is 8.5% “plus” and it will be achieved at the turn of 2022 and 2023”, Benecki wrote in the commentary on the RPP decision.

For borrowers, a vision in which the NBP reference rate increases to 7% means a lot of trouble. Especially for those who took out loans at rates close to zero during the pandemic. In such cases, their loan instalments are already higher by about 80% compared to the date of the conclusion of the contract.

Arkadiusz Słomczyński order