Polish central bank expected to raise interest rates sharply to save zloty – The First News

Leszek Szymanski/PAP

Polish interest rates could be hiked by at least 50 basis points on Tuesday, with some economists expecting a hike of 75 basis points or even 100 basis points as the Polish zloty suffers losses and volatility without previous.

Despite currency interventions by the Polish central bank and the Ministry of Finance, the zloty has weakened against the euro in recent days amid market uncertainty caused by the war in Ukraine.

On Monday, the exchange rate briefly hit 5 zlotys against the euro, setting a new record high.

Some analysts have pointed out that the zloty is weakening more than other currencies in the CEE region due to its liquidity, while others have pointed out that the protracted crisis in Ukraine is causing investors to perceive the zloty as a riskier asset. , due to Poland’s proximity to Ukraine.

High interest rates make loans and mortgages more expensive and can therefore dampen GDP growth; however, the Polish central bank had been forced to embark on a series of interest rate hikes even before the war, starting in October 2021.

At the time, rates were raised to suppress soaring inflation amid an energy crisis and global supply chain disruptions caused by the Covid-19 pandemic.

Today, with the war putting additional pressure on inflation and the Polish currency, the market expects interest rates to rise more than before.

According to a median forecast from 20 local analysts in a PAP consensus survey, Poland’s Monetary Policy Council (MPC) will likely add a 50 basis point interest rate hike on Tuesday to the 265 basis points of hikes since October. , which will bring the benchmark rate down to 3.25 percent.

Local experts now expect the main interest rate to reach 4.00% by the end of the first half and say it could reach 4.25% in December. Before the war, the year-end projections were 4%.

Against a backdrop of heightened inflationary risk and the recent weakness of the zloty, analysts are even more divided on the extent of monetary policy tightening than in previous months. Specifically, 13 analysts expect a 50bps hike and seven expect bolder moves from the MPC – four analysts forecast a 75bps hike, two players forecast a 100bps hike and an analyst bets on a rise of 125 basis points.

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