The MPC surprises the market because it is afraid of permanent high inflation
22:38
The Monetary Policy Council changed its mind and no longer believes that the current price increase is temporary. The surprising rate hike is to prevent inflation from remaining above the NBP target for a longer time. The MPC raised rates by 40 basis points. Analysts expected a rate hike, but not sooner than in November.
The MPC has been under a lot of pressure recently after inflation rose to 5.8 percent in September. And some economists began predicting that it would amount to 7 percent by the end of the year.
According to the MPC, there is a risk that the current increase in prices, driven mainly by rising commodities, may become permanent, especially when economic activity picks up. This can be seen, for example, in the labor market, where – although employment is lower than before the pandemic – we have a very fast increase in wages.
After the decision, the NBP reference rate will be 0.5 percent, not 0.1 percent as so far.
Piotr Bartkiewicz, an economist of Bank Pekao SA, points out that the statement after the meeting is surprisingly restrained.
"The MPC justifies the increase in interest rates by the risk of inflation persisting above the target in the medium term, but it does not undertake any decisions at subsequent meetings and does not make them conditional on any conditions. Moreover, the NBP continues to declare the possibility of using foreign exchange interventions and other instruments," he commented.
