Poland raises interest rates, seeking to tame inflation

WARSAW, Poland (AP) — Poland’s central bank unexpectedly raised interest rates on Wednesday as the central European nation faces an accelerating inflation rate that is currently the highest in the European Union.

The annual inflation rate rose to 5.8% in September, the highest in two decades, while economists have predicted that it is likely to accelerate even further in the coming months.

Either way it is already well above the central bank’s target of 2.5%, and it is common to hear Poles grumble these days about the rising price of food, gas and utilities.

The Polish authorities had until recently seemed to play down the risk of inflation given that wages are also rising amid fast economic growth in a country that has been an economic success story since the fall of communism three decades ago.

But not all Poles benefit from the wage increases, and as inflation made an unexpected jump in September, it became clear that the economy faces the threat of a dangerous wage-price spiral.

The National Bank of Poland, or NBP, raised the reference rate by 40 basis points from 0.1% to 0.5%. The decision, which marks the first interest hike in nine years, came as a surprise to economists.

Experts had not expected interest rates to go up now because many of the reasons for the rising inflation — including a surge in gas and oil prices — are related to temporary shocks beyond the influence of the central bank.

However, the NBP governor Adam Glapinski said earlier this week that monetary tightening may be needed to prevent inflation from consolidating at an elevated level when the shocks pass. In its decision Wednesday, the bank cited the risk of inflation remaining elevated longer than expected so far.

“There had been concern that the NBP had its head in the sand for too long, but these comments suggest that they are taking the fight against inflation more seriously,” Capital Economics said in a note.

Danske Bank called the move surprising in part because the central bank had said that Poland should be largely out of the COVID-19 crisis before hiking rates, while the country has in recent weeks been seeing a rise in new infections.

The historically low interest rates in Poland, like in many other countries, are one factor that have buoyed strong growth, but also contributed to skyrocketing prices of real estate that have made it impossible for many to become homeowners.

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