Monetary Policy Council raises interest rates again to tackle inflation

At the same time, the Council set the remaining NBP interest rates at the following levels:

- lombard rate at 2.75%;

- deposit rate at 1.75%;

- rediscount rate at 2.30%;

- discount rate at 2.35%.

Poland's Monetary Policy Council (RPP) said in a statement issued on Tuesday that "despite another wave of increase in infections, economic activity continues to recover, as indicated by monthly data on industrial production, retail sales and construction and assembly output".

"The situation in the labour market continues to improve, which is reflected in decreasing unemployment, rising employment and a marked increase in average wages. In the coming quarters economic conditions are expected to remain favourable. However, there are uncertainty factors related to the impact of the pandemic on global and domestic economic conditions, as well as to the effects of supply-side constraints and high energy commodity prices on the economy," the RPP said.

"Inflation in Poland in November 2021 increased to 7.8% in annual terms, and in monthly terms it amounted to 1.0%. A significant contribution to an increase in inflation was made by the rise in global prices of commodities – including energy and agricultural commodities – observed in the second half of 2021, record high increase in prices of CO2 emission allowances, rising prices of goods whose supply has been constrained by global pandemic disruptions as well as earlier increase in electricity prices and in waste disposal charges, we read further.

The RPP also said that the "ongoing economic recovery, including demand driven by rising household income, has also added to an increase in inflation". "These factors, together with a rise in regulated tariffs on electricity, natural gas and thermal energy will contribute to inflation remaining at an elevated level also in 2022. In turn, a reduction in some tax rates as part of the so-called Anti-inflationary Shield will have a curbing impact on inflation".

"In a longer perspective, inflation will decrease, which will be supported by expected fading of some global shocks currently boosting price growth, as well as by an increase in the NBP interest rates. At the same time, amidst further economic recovery and expected continuation of favourable labour market conditions, as well as probably more lasting impact of external shocks on price dynamics, there persists a risk of inflation running above the NBP inflation target in the monetary policy transmission horizon," we read in the press statement.

"In order to reduce this risk, i.e. striving to decrease inflation to the NBP target in the medium term, the Council decided to increase NBP interest rates again. The increase of the NBP interest rates will also curb inflation expectations," the Council concluded.