Poland's central bank raises reference interest rate by 75 bps

Rafał Guz/PAP

The Monetary Policy Council (RPP), the Polish central bank's rate-setting body, increased the reference interest rate by 75 basis points (bps) to 6.00 percent on Wednesday.

The National Bank of Poland's Lombard rate was also raised from 5.75 percent to 6.50 percent, the rediscount rate from 5.30 percent to 6.05 percent, and the discount rate from 5.35 percent to 6.10 percent.

At the same time, the RPP also increased the deposit rate from 4.75 percent to 5.50 percent.

The latest hike is the ninth in a row, and is seen by economists as a reaction to rising inflation and the weakening national currency.

The prices of consumer goods and services (Consumer Price Index, CPI) increased by 13.9 percent year on year, and by 1.7 percent month on month in May 2022, according to the Central Statistical Office (GUS).

In a statement issued later on Wednesday, the RPP said that further rate decisions would depend on the prospects for inflation and economic activity, and also on the impact of Russia's invasion of Ukraine.

"The NBP may intervene on the FX market, in particular to mitigate fluctuations in the exchange rate of the Polish zloty that are divergent from the direction of its monetary policy," the RPP said.

Commenting on the record-high CPI reading, the RPP said that "elevated inflation results from a strong growth in global prices of energy and agricultural commodities, to a large extent as a result of Russia's aggression against Ukraine, and an earlier increase of domestic electricity, natural gas and heating tariffs."

"Inflation has also been boosted by disturbances in the global supply chains and high costs of transport in international trade," it continued, adding that it expected factors affecting inflation to still be present in the coming quarters.

However, the rate increases will gradually bring inflation down in the coming years, the RPP said.

Adam Glapiński, the governor of the National Bank of Poland, will hold a press conference to discuss the latest rate hike on Thursday.