(Bloomberg) – Poland unexpectedly increased borrowing costs for the first time since 2012, giving in to pressure from government and investors to tackle the spike in inflation that has already triggered rate hikes of interest throughout Eastern Europe.
Bloomberg’s Most Read
The central bank did not say whether Wednesday’s hike in the benchmark rate to 0.5% from a record low of 0.1% was a one-time move or the start of a tightening cycle. Governor Adam Glapinski – who suggested just a day ago that the benchmark could remain on hold until 2023 – will hold a press conference on Thursday.
The move came hours after Prime Minister Mateusz Morawiecki said he expected a “proper†central bank response to the fastest price growth in two decades – comments some saw as a a sign that political acceptance of higher inflation was running out.
The zloty saw the strongest advance among emerging market currencies, which was not predicted by any of the 29 economists surveyed by Bloomberg. Bonds prolonged a massive selloff and the WIGBank index of Warsaw-listed lenders hit its highest level since 2018.
The central bank’s statement did not clarify the Monetary Policy Council’s outlook on rates. They dropped a paragraph on further quantitative easing but did not say whether the program was over. They reaffirmed that currency interventions, which they used in late 2020 to weaken the zloty, were still part of their toolbox.
The statement on the interventions “can be read as an attempt to soften the hawkish tone of today’s decision,” said Piotr Bartkiewicz, economist at Bank Pekao SA. “Thus, the door is open to further rate hikes – and therefore to a normal tightening cycle – as well as rate stabilization.”
Glapinski turn
Three of Glapinski’s predecessors warned this week in an open letter that further delays in rate hikes would put the economy at risk and violate the central bank’s price stability mandate.
The outcome of the MPC meeting is surprising because only a day earlier Glapinski was sticking to his contested position that the price spike was temporary and caused by factors beyond the central bank’s control, such as the spike. energy costs.
In a speech on the eve of the MPC meeting, Glapinski called economists who demanded an immediate hike “amateurs or politicians,” and that bank analysts’ views were skewed because higher rates raise prices. profits of lenders.
“If the external impulses turn into expectations and wages, and that would set inflation at a higher level,” then “in two, three, four or five quarters, if we admit that such a threat becomes real, a decisive withdrawal from the accommodative policy will be necessary, â€the governor told the Congress 590 forum on Tuesday.
Communication failure
Grzegorz Maliszewski, an economist at Bank Millennium SA, said the surprise followed “inadequate†communications from the central bank on the state of the economy and pandemic risks, while the MPC’s statement “did not not useful â€to assess the future steps of decision-makers.
In its statement on Wednesday, the bank said consumer price growth – the fastest in the European Union at 5.8% – would remain high. The MPC targets medium-term inflation of 2.5% with a margin of tolerance of +/- 1 percentage point.
“The central bank could no longer ignore such inflation,†said Monika Kurtek, chief economist of Bank Pocztowy SA. “On the other hand, it’s a completely shocking decision in light of Glapinski’s comments so far.”
This move brings Poland more in line with neighboring countries. Hungary and the Czech Republic have already raised rates several times in response to similar inflation spikes and plan to raise them further. Romania unexpectedly hiked rates on Tuesday for the first time since 2018.
For ING Bank Slaski SA analysts, other rate hikes are underway, ultimately bringing the benchmark index to 2%, against 1.5% before the pandemic.
“This is not the end,†they said in a tweet. “We are seeing significant fiscal expansion in 2022 and high inflation. “
(Updates with more quotes and comments from the second paragraph.)
Bloomberg Businessweek Most Read
© 2021 Bloomberg LP
