Poland Monetary Policy July 2022

At its meeting on 7 July, the National Bank of Poland (NBP) raised the key reference rate by 50 basis points from 6.00% to 6.50%. This marked the tenth consecutive rate hike since it began its tightening cycle in October 2021. The NBP also raised the Lombard rate to 7.00%, the rediscount rate to 6.55% and the deposit rate to 6.00%—from 6.50%, 6.05% and 5.50%, respectively.

The basis for the NBP’s decision remained the same, namely surging price pressures, with inflation hitting an over 25-year high of 15.5% in June amid disrupted supply chains and higher energy and food costs due to the war in Ukraine. The Central Bank expects inflation to remain elevated but moderate going forward as a result of higher interest rates, the fading impact of current shocks and the appreciation of the zloty. However, it also took on a slightly dovish tone, citing weaker global growth concerns.

In its communiqué, the NBP reiterated that “there persists a risk of inflation running above the NBP inflation target in the monetary policy transmission horizon”. Policymakers have also repeated that their decisions will remain driven by data and by the impact of the ongoing war in Ukraine on the Polish economy. That said, the majority of our panelists see further rate increases this year.

Commenting on the near and medium-term outlook, analysts at Goldman Sachs stated:

“We expect core inflation to continue rising into year-end. Adding to this that inflation expectations remain near all-time highs, the broad nature of price increases, and that the FX could remain under pressure amid global tightening in financial conditions, we think that the NBP will need to tighten policy further. While NBP Governor Glapinski expressed the most dovish guidance to date in the last MPC meeting, we think that the economic conditions will call for additional rate hikes, and we recently revised our terminal rate forecast for Poland from +7.00% to +8.00%.”

The next monetary meeting is scheduled for 7 September.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments and new forecasts will be released on 2 August.