Polish Monetary Policy Council (MPC) raised the reference interest rate by 1% up to 4.5%. Earlier economists assumed an increase of 0.5-0.75%.

This is the seventh consecutive rate hike since October last year and the highest rate hike in the 21st century.

“The Council assessed that there is still a risk of inflation above the NBP’s inflation target in the monetary policy horizon. In order to limit this risk, and thus aiming at bringing inflation down to the NBP’s target in the medium term, the Council decided to raise the NBP interest rates again. The increase in the NBP interest rates will also conduct to limiting inflation expectations”, stated the Council.

The effect of such a strong increase in interest rates will be an increase in loan installments, but also a decline in real estate prices, possibly a decline in share prices and a strengthening of the PLN exchange rate. Economists claim that the increase will also cause negative pressure on inflation and mean higher costs of the State Treasury debt servicing.

The current actions of the Monetary Policy Council are aimed at strengthening the Polish zloty. A stronger currency will mitigate the global price shock caused by the war in Ukraine, says the Polish Economic Institute (PIE).

A similar opinion is expressed by mBank economists who write that the Council’s decision “looks like a volley to strengthen the zloty and show determination to fight inflation”.

The difference between interest rates in Poland and the Eurozone becomes currently the largest in 20 years, which strengthens the zloty. The much higher interest rate on the domestic market encourages investors to invest in Poland – convinces PIE and adds that the first-rate cuts are possible in the second half of 2023. The sanctions imposed on Russia and the increase in energy commodity prices will weaken the economic situation in Poland and the Eurozone. In the next few years, central banks will ease their monetary policies.

Adrian Andrzejewski order