Failure to raise interest rates may result in losing control of inflation

The Monetary Policy Council did not surprise and did not raise interest rates. Analysts expected just such a decision, although inflation in August rose to a record level of 5.4 percent y/y, the highest since June 2001. This level is much higher than the projection presented by the NBP in July. At the same time, the strong increase in the prices of energy (6.1 percent y/y) and food prices (3.9 percent y/y) shows that in the coming months, inflation is not expected to fall. And its further growth is likely, even above 6 percent, which may force the council to react. However, at present, it is dominated by opinions about the temporary nature of inflation and fears of a monetary tightening in the face of possible subsequent scenes of the pandemic.

"It seems that therefore the council will withhold interest rate hikes until the November inflation projection is presented and the pandemic situation clears up. It will probably also watch the FED decisions, which the NBP governor mentioned in a recent interview with PAP. control over ever-increasing prices in the absence of sufficiently quick action," Paweł Majtkowski, market analyst at eToro in Poland, said.

(WBJ)