The National Bank of Poland (NBP) raised its reference rate by another 50 basis points to 1.75 percent and has now raised it 1.65 percentage points this year following hikes in October, November and today.
NBP also raised its other rates by 50 basis points, with the Lombard rate now at 2.25 percent, the deposit rate at 1.25 percent, the discount rate at 1.85 percent and the rediscount rate at 1.80 percent.
The National Bank of Poland released the following statement:
"Information from the meeting of the Monetary Policy Council held on 8 December 2021
The Council decided to increase the NBP reference rate by 0.50 percentage points, i.e. to 1.75%. At the same time, the Council set the remaining NBP interest rates at the following levels:
▪ lombard rate at 2.25%;
▪ deposit rate at 1.25%;
▪ rediscount rate at 1.80%;
▪ discount rate at 1.85%.
The activity in global economy continues to recover, yet economic conditions are under a negative impact of supply-side constraints in some markets, high commodity prices and re-escalation of the pandemic in certain countries, including the euro area. Latest forecasts indicate that GDP growth in 2022 will remain relatively robust, although lower than in 2021. The emergence of a new variant of coronavirus contributed to higher uncertainty regarding further course of the global epidemic and economic developments, and hence to some deterioration of sentiment in the global financial markets and an increase in risk aversion.
Commodity prices – in particular prices of natural gas, oil, coal, as well as of some agricultural commodities – remain markedly higher than a year ago. Together with continued global supply chain disruptions and still high international shipping costs, and amid recovery in demand, this contributes to a marked rise in inflation globally, which in many countries has reached highest levels in decades. Moreover, also inflation forecasts for the coming quarters have been revised up, which points to the risk of longer than previously judged impact of pandemic shock on inflationary processes.
Against this background some central banks are withdrawing monetary accommodation, however, decisions of monetary authorities are not homogenous and take into account conditions for conducting monetary policy in particular economies. Central banks in the Central-Eastern Europe region have been increasing interest rates. The ECB, despite inflation being the highest in the euro area history, keeps negative interest rates and continues big scale asset purchases. In turn, the US Federal Reserve keeps interest rates close to zero, but at the same time signals the possibility of a more rapid deceleration of asset purchases, which together with an increase in risk aversion leads to an appreciation pressures on the US dollar in global markets.
In Poland, economic activity continues to recover, despite another wave of increase in infections. Robust economic conditions are reflected in preliminary estimate of GDP, according to which annual GDP growth in 2021 Q3 stood at 5.3%, accompanied by a significant acceleration in investment. Data on industrial production, retail sales and construction and assembly output for October 2021 point to a solid increase in economic activity also in 2021 Q4. The situation in the labour market likewise continues to improve, as indicated by decreasing unemployment and a marked increase in average wage. In the coming quarters economic conditions are expected to remain favourable. However, there are uncertainty factors related to the impact of the pandemic on global and domestic economic conditions, as well as to the effects of supply-side constraints and high energy commodity prices on the economy.
Inflation in Poland, according to the Statistics Poland flash estimate for November 2021, increased to 7.7% in annual terms, and in monthly terms it amounted to 1.0%. The elevated inflation resulted, to a great extent, from external factors beyond the control of domestic monetary policy, such as higher than a year ago global prices of energy and agricultural commodities, earlier increase in electricity prices and in waste disposal charges, as well as rising prices of goods, whose supply has been constrained by global pandemic disruptions. The ongoing economic recovery, including demand driven by rising household income, has also added to the price growth.
The rise in global prices of both energy and agricultural commodities observed this year, record high increase in prices of CO2 emission allowances, as well as continued global supply chain disruptions have led to significant rise in inflation in Poland, which is going to remain at an elevated level also in the coming period. The so-called Anti-inflationary Shield announced by the government will have a curbing impact on inflation.
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 favourable labour 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. In order to reduce this risk, i.e. striving to decrease inflation to the NBP target in the medium term, the Council decided to increase NBP interest rates again. The increase of the NBP interest rates will also curb inflation expectations.
Decisions of the Council in the coming months will continue to be aimed at reducing inflation to a level consistent with the NBP inflation target in the medium term, while taking into account economic conditions, so as to ensure medium-term price stability and at the same time support sustainable economic growth after the global pandemic shock. The Council’s assessment regarding the total scale of monetary tightening necessary for achieving these goals will consider incoming information on perspectives for inflation and economic growth, including situation in the labour market.
NBP may still intervene in the foreign exchange market and use other instruments envisaged in the Monetary Policy Guidelines. The timing and scale of the measures taken by NBP will depend on the market conditions."
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