Poland’s central bank kept interest rates on hold for a seventh month after the government cut fuel prices, easing inflationary pressures for the time being.
The respite is likely to be brief, however, with financial derivatives and some economists expecting the Monetary Policy Council to hoist borrowing costs as soon as in November to slow a rise in inflation expectations.
The MPC kept its benchmark at 3.75% as expected by all 34 economists surveyed by Bloomberg. The decision comes just days after the government revived measures to shield customers from spiking fuel prices, which economists said would reduce headline inflation in October from a 15-month high of 4% set in September.
“Today interest rates were kept on hold, but they won’t say this way for long,” said Bank Pekao SA economists, led by Ernest Pytlarczyk. They predicted a hike “in the nearest months.”
The MPC’s post-rate decision statement on Wednesday didn’t shed new light on the policymakers’ outlook, sticking closely to its comments from previous months. Governor Adam Glapinski is scheduled to hold a news conference at 3 p.m. in Warsaw on Thursday.
Second-Round Effects
Credit Agricole Bank Polska SA analysts expect a quarter-point increase in November to limit second-round risks from high fuel costs. The MPC targets price growth over the medium-term at 2.5%, with a tolerance band of plus/minus one percentage point.
Traders had pared wagers on Polish rate increases after the government introduced caps on fuel prices starting last Saturday. Nevertheless, forward-rate agreement contracts signal about two quarter-point increases in six months and roughly four over the next 12 months.
The zloty traded about 0.2% weaker against the euro as of 4:21 p.m. in Warsaw, while the yield on benchmark 10-year government bonds increased 3 basis points to 6.28%.
PKO Bank Polski SA economists said that investors may be too hawkish in their outlook for Polish rates and that market focus will be on the National Bank of Poland’s inflation projections due out in November.
“The current inflation outlook does not necessitate interest rate hikes; due to the transitory nature of supply shocks, inflation will be close to the NBP’s target by the end of 2027,” PKO said.
At last month’s news conference, Glapinski said that rates could stay on hold until mid-2027. But he sounded less dovish in comments made on Sept. 30, just days before the new fuel measures were announced. The NBP “will act responsibly and decisively to keep inflation low,” the governor said at the end of last month.