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Interest rates up

The Monetary Policy Council unexpectedly decided to increase the NBP reference rate by 0.4 percentage points, from 0.1 to 0.5 percent.  At  the  same  time,  the Council  set  the  remaining  NBP  interest  rates  at  the following levels:

▪ lombard rate at 1.00%;

 ▪deposit rate at 0.00%;

▪rediscount rate at 0.51%;

▪discount rate at 0.52%.

Moreover, the Council decided to increase the required reserve ratio from 0.5% to 2.0%. The  activity  in  global  economy  continues to  recover,  yet  an  increase  in  the  number  of infections  observed  in  recent  months  together  with supply-side  constraints  in some markets, has contributed  to the weaker activity  growth in  some economies  in  Q3. The global  commodity  prices–in  particular that  of natural  gas,  but  also  oil  and  some agricultural commodities–have risen markedly in the recent period and are now much higher than ayear ago. Together with supply-side constraints in some markets and fast growth  in  prices  of  international transport,  it  has  contributed in  recent  months to significant increase in inflation in many economies. Nevertheless, major central banks are keeping interest rates low while continuing asset purchases.

In Poland, economic activity continues to recover. In August, the annual growth of retail sales, industrial production and of construction and assembly output have picked up. At the  same  time, supply-side  constraints  in some markets are  weighing  on business sentiment in the manufacturing  sector. Even  though the  average  employment  in  the enterprise sector has been still somewhat below the pre-pandemic level, the situation in the labour market is improving which is reflected insubstantial average wage growth in this   sector.   In   the coming quarters, economic   conditions are   expected   to   remain favourable, although there is still an uncertainty regarding an impact of autumn wave of the epidemic on the economic activity.

Inflation in Poland, according to the Statistics Poland flash estimate for September2021, increased to 5.8% in annual terms, and in monthly terms it amounted to 0.6%. The elevated inflation resulted, to a great extent, from 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 disruptions in global  supply  chains  and  international  transport. The  ongoing economic recovery, including rising household income, has also added to the price growth.

Even  though  the  impact  of  some supply-side factors  currently increasing inflation will fade  next  year, the  rise  in  global  prices  of  both  energy  and  agricultural  commodities observed in recent months may still increase price growth in the coming quarters. Amidst probable further economic  recovery  and  favourable  labour  market  conditions,  inflation may remain elevated longer than hither to expected.

Such  a  situation  would  generate  a  risk  of  inflation staying  above  inflation  target in  the medium term. In order to decrease the inflation to NBP  target in the medium term, the Council decided to increase NBP interest rates. Moreover 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.

Sylwia Ziemacka
Sylwia Ziemacka
Managing Director
She has over 15 years of experience in media, communication and public relations. She used to work for several publishers, managing both Polish and international media projects. She specializes in B2B communication and publishing.