Poland Attacks Inflation With World’s First 2022 Rate Hike

(Bloomberg) -- Poland staged the world’s first interest-rate hike this year and signaled it’s ready to do more, intensifying the battle against inflation that’s poised to hit its highest point this century.

Rate setters lifted the benchmark 50 basis points to 2.25% on Tuesday after sharply raising the 2022 inflation forecast. Fifteen of 17 economists predicted the move in a Bloomberg survey, while the other two expected a 75 basis-point rise.

Actions in the coming months will continue to focus on bringing inflation back to target over the medium term, the central bank said in a statement after the decision. The scale of policy tightening will hinge on the outlook for inflation and economic growth, including the labor market, it said. Governor Adam Glapinski will brief the media at 3 p.m. in Warsaw on Wednesday.

The decision was the fastest move in a new year by a central bank globally since 2009. The zloty and Polish bank shares pared earlier gains following the decision. The currency traded 0.3% stronger on the day at 4.5649 per euro at 4:48 p.m. in Warsaw. 

With the fourth hike straight hike since October, Poland continues its scramble to catch up with regional peers Hungary and the Czech Republic, where policy makers have launched Europe’s most-aggressive campaigns to rein in spiraling price growth.

Polish central bank Governor Adam Glapinski, who resisted calls to start raising interest rates for the better part of 2021, said last week inflation would peak at above 8% in June and indicated more hikes were needed.

The central bank “has become more concerned about rising inflation expectations of households, and these fears are likely to persist,” Liam Peach, an economist at Capital Economics in London, wrote in a note. 

While he expects another 75 basis points of increases this year, Peach said “the risks are arguably skewed toward even further tightening” because of inflation now set to peak at a higher than previously expected level and rising wages “threatening to ignite a wage-price spiral.”

In November, consumer price growth surged to 7.8%, the highest since December 2000. Driving the spike are soaring energy prices, a factor expected to persist this year. 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 this month.

Kotecki told the Senate on Tuesday that the current MPC had “slept” through right moment to start tightening monetary policy and that he wouldn’t be surprised by a hike larger than half-a-percentage point.

Litwiniuk said he would generally favor raising interest rates, as well as for discussions over using “other instruments at the MPC’s disposal”.

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.

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