World’s First 2022 Rate Hike on Cards in Poland

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Poland will probably stage the world’s first interest-rate hike this year, intensifying the battle against inflation that’s poised to hit its highest point this century.

After the central bank sharply raised its 2022 inflation forecasts, it’s expected to hike the benchmark rate by 50 basis points to 2.25% on Tuesday, according to 15 of 17 economists surveyed by Bloomberg. The other two expect a 75 basis-point rise.

Having raised borrowing costs three times in the last three meetings, the Monetary Policy Council is still scrambling to catch up with its regional peers Hungary and the Czech Republic, where policy makers have launched Europe’s most-aggressive campaigns to rein in spiraling price growth. Polish Governor Adam Glapinski said last week inflation would peak at above 8% in June and indicated more hikes were needed.

“The Council will hike by 50 basis points,” said Piotr Poplawski, an economist at ING Bank Slaski, citing rising inflation expectations and a growing risk of the wage-price spiral. “These factors threaten a return of inflation to the upper range of the inflation target at the end of 2023.”

Glapinski will hold a news conference at 3 p.m. on Wednesday to discuss the decision. 

Driving the spike in inflation are soaring natural gas and energy prices, a factor expected to persist in 2022. That will continue to pose challenges to the MPC, which will undergo a major reshuffle as almost all of its members will be replaced by end-March.

Tuesday’s meeting will be the last for rate setters Jerzy Kropiwnicki and Eugeniusz Gatnar before they are replaced by the Senate. The chamber is poised to vote former deputy finance minister Ludwik Kotecki and economy professors Przemyslaw Litwiniuk and Joanna Tyrowicz to the 10-person panel next week.

All three have advocated for higher interest rates, while Gatnar said last week that “a 50 basis-point hike would be appropriate” if forecasts that inflation exceeded 8% in December are confirmed on Friday. In November, consumer price growth surged to 7.8%, the highest since December 2000.

Another concern is the persistent pandemic and its potential to undercut economic growth, a main factor in the central bank’s previous reluctance to tighten policy this year. The government has re-imposed some social-distancing restrictions but forgone full lockdown protocols.

“The expected interest rate hike could be even higher, but the risk of an increase in infections due to the omicron variant remains high,” ING’s Poplawski said.

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