Polish central bank hikes less than expected as growth risks loom

By Pawel Florkiewicz

WARSAW (Reuters) -The National Bank of Poland (NBP) raised its main interest rate less than expected on Thursday, as it weighed the effects of the war in Ukraine on economic growth against inflation that has surged to levels unseen in almost a quarter of a century.

The bank raised its main interest rate by 75 basis points to 5.25%. Analysts polled by Reuters had expected the main interest rate to rise to 5.50%.

The largest economy in the European Union’s eastern wing has continued to see robust growth in industry and consumption despite the conflict across its eastern border, but the effects of the war on commodity prices helped push inflation to 12.3% in April, the highest level since 1998.

“A continuation of favourable economic conditions may be expected in the coming quarters, although a gradual slowdown of economic growth is forecast,” NBP said in a statement, adding that the war created domestic and global uncertainty.

The Polish zloty, which had firmed earlier in the trading session, fell after the decision and was 0.32% weaker on the day against the euro at 1458 GMT. Warsaw’s WIG banks stock index was down 1.7%.

“The war is already weakening economic activity in the eurozone and the United States… Economic slowdown will lead eventually to a lower tightening cycle,” the Polish Economic Institute (PIE) said in a note.

However, Liam Peach, emerging Europe economist at Capital Economics said that “further large hikes are likely to be needed to deal with the country’s growing inflation problem”.

The NBP said that inflation would remain “markedly elevated” in the coming months due to the impact of the war, rising energy prices and strong domestic consumer demand driven by rising incomes. However, it said that it expected CPI to decrease in the coming years, helped in part by a stronger zloty.

Elsewhere in the region, The Czech central bank raised its main interest rate by 75 basis points on Thursday to 5.75%, a bigger-than-expected hike that brought the rate to its highest since 1999.

(Reporting by Alan Charlish, Pawel Florkiewicz, Anna Wlodarczak-Semczuk, Marek Strzelecki; Editing by Emelia Sithole-Matarise)