Central bank chief says rate-hike cycle only on hold

The head of the National Bank of Poland (NBP) has said a recent cycle of interest-rate hikes is merely on hold rather than formally at an end.

The NBP has increased interest rates 11 times in recent months to help combat an inflation rate that hit 17.2 percent in September.

"It is a halt in the cycle of rises, not a formal end to the cycle of increases," Adam Glapinski told a press conference on Thursday.

"The cycle is formally open the whole time," Glapinski continued. "We are stopping price rises, interest-rate rises, we are looking at the situation. We are looking at it till November. In November another inflation report will be published, which for the NBP, for all observers, is the most important document, allowing the best view of the coming quarters."

The central bank chief went on to say that "this does not mean that in times of such strong shocks and unforeseeable events we can fully predict the future.”

"At the moment this risk, this uncertainty, is especially large," he said. "The number-one risk is the development of the war situation in Ukraine.

"At the moment we have the data we have," he continued. "They allow us to break the cycle of increases, to wait for November's forecast, to see what the GUS (Central Statistical Office - PAP) data will be and look again at the issue. We're not saying we have stopped raising rates for good."

Glapinski drew attention to the fact that 11 consecutive interest-rate hikes by the Monetary Policy Council (RPP)—the longest rate-rise cycle in the RPP's history—had significantly limited demand for loans from the private sector, particularly from households.

"I'm talking about something that is useful from the point of view of the fight against inflation but is also sad and painful for households," he explained. "Without lasting growth in loans it is hard to expect a high inflation rate to be maintained in the medium term."

Commenting on the RPP's rate-hike cycle, analysts at Goldman Sachs said they expected the council to raise the reference rate as high as 8 percent from the current 6.75, and added that they believed inflation had not yet hit its peak in 2022. The bank also said the RPP's Wednesday decision to halt the rate-hike cycle was against its expectations and the market consensus, which had expected a rise of 25 basis points.

The analysts said the RPP's dovish attitude was due to the belief that inflation is caused by high commodity prices and supply shocks, which are beyond the control of monetary policy. They said that at the same time the RPP had signalled that due to such shocks being beyond its control, inflation's return to the target level would be more gradual, which may mean increased readiness to tolerate high inflation for a longer period.

Inflation, they added, had not peaked this year despite a drop in crude oil prices and beneficial base effects in energy inflation.