Polish central bank hikes main rate as it battles zloty weakness

The National Bank of Poland (NBP) hiked its policy rate by 75 basis points today (March 8) as it sought to curb surging inflation and tackle a sudden drop in the value of the zloty.

The hike takes the central bank’s main rate to 3.5%. It follows a series of increases since October that have brought the central bank’s main rate up from 0.1%.

In a statement, the NBP noted inflation hit 9.2% in January, well above the 2.5% target, which sits in a tolerance band of plus or minus one percentage point. The central bank said inflation had been pushed up by high energy and food prices, and was likely to remain “significantly” elevated, in part because of Russia’s invasion of Ukraine, which has disrupted both food and energy markets.

Worsening the outlook for prices, the zloty has plunged against the US dollar since Russia began its full-scale invasion on February 24. The central bank said on March 4 it was intervening to defend the currency, but its actions did little to slow the currency’s decline. The zloty has fallen from around 4 to the US dollar on February 24 to 4.5 today, though the exchange rate has been very volatile.

In its statement today, the NBP said the value of the zloty did not appear to be justified by economic conditions. The central bank expects growth to remain robust this year, in the range of 3.4–5.3%, though it has trimmed back its forecast from 3.8–5.9% in November.