Poland Signals Shock Rate Hike Won’t Be Repeated Soon

(Bloomberg) -- Poland, which unexpectedly raised borrowing costs for the first time since 2012 this week, will decide on further hikes in interest rates based mainly on how the economy performs, according to central bank Governor Adam Glapinski.

Glapinski, until recently the country’s strongest dovish voice, told reporters Thursday in Warsaw, that the bank would stay for “longer” in a ‘wait-and-see’ mode as it decides whether more rate increases are necessary to curb inflation.

“I can’t say what the next move will be,” he said. “We’re definitely going to look at the impact of the rate increase. Tightening generally has to be cautious. We had to tighten but not by too much so as not to suffocate the patient.”

The zloty, which jumped more than 1% against the euro after Wednesday’s rate rise, lost 0.4% following Glapinski’s remarks a day later. 

That hike, to 0.5% from a record-low 0.1%, wrong-footed all 29 economists surveyed by Bloomberg. It came just hours after Prime Minister Mateusz Morawiecki said he hoped the central bank would take “appropriate” action to tackle inflation that’s at a two-decade high.

Read more: Polish Central-Bank Credibility Questioned After PM Rate Remarks

Glapinski, who’d signaled right up to Tuesday evening that higher rates could still be some way off, said on Thursday that the central bank increased rates at the ideal time.

He didn’t directly refer to Morawiecki’s comments during his news conference, but repeatedly said the central bank is fully independent from the government.

Other eastern European countries are already tightening monetary policy aggressively to curb soaring consumer prices. Romania also surprised analysts this week by lifting benchmark borrowing costs for the first time since 2018.

Glapinski reiterated that inflation in Poland has been largely influenced by external shocks, but that the central bank needed to react now to prevent potential demand shocks or a wage-inflation spiral.

He sees price growth of about 6% at year-end, and “how far it moves further” will, alongside the economy’s trajectory, help steer future rate decisions. 

Rafal Benecki, chief economist at ING Bank Slaski in Warsaw, pointed to an “ambiguous message” from the governor’s news conference.

“One one hand, yesterday’s move is a pre-emptive one; on the other, the Monetary Policy Council remains flexible,” he said. Updated forecasts next month “will show inflation topping 3.5%, keeping a moderate hike in November on the table and another in 2022.”

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