Interest rate hike was meant to surprise market - central bank chief

"Our decision will not lower the current inflation rate, because it is impossible," Glapiński said. Rafał Guz/PAP

The decision by the Monetary Policy Council to raise interest rates was designed to surprise the market, Poland's central bank governor said on Thursday.

On Wednesday, the rate council unexpectedly hiked Poland's reference interest rate by 40 bps to 0.50 percent.

The decision came as Poland's inflation hit another 20-year high of 5.8 percent in September.

"Yesterday the RPP (Monetary Policy Council) raised interest rates to some surprise on the market,” Adam Glapiński told a press conference. "The market predicted an increase by 15 basis points, and we raised them by 40 bps, almost three times more - and we wanted it to be that way."

The reason for the rate hike, he said, was to fend off the risk of inflation persisting in the medium term.

"The risk of inflation exceeding our mid-term target has increased significantly in the recent period due to new global supply shocks," Glapiński said.

They (the supply shocks) "have lengthened and shifted upwards the expected inflation path, and it will be higher and for longer, and we know this ahead of the November projections," he added.

Supply shocks include energy commodities, food commodities, supply disruptions caused by Covid outbreaks and increasing freight prices, Glapiński said.

The situation will return to normal as the shocks fade, but that will not happen immediately, he added.

"Our decision will not lower the current inflation rate, because it is impossible," Glapiński said.

He added that the RPP's Wednesday decision meant "withdrawing from the positions taken in May 2020."

Between March 17 and May 28, 2020, the Monetary Policy Council cut the reference rate three times by a total of 140 bps to 0.10 percent to offer support for the economy during the crisis caused by the first coronavirus wave.

"We have phased out the booster that was introduced to sustain the economy during the crisis. We came to the conclusion that the basic elements of this crisis are behind us, although we do not underestimate the fact that the pandemic is still continuing," Glapiński said.