Polish Central Bank Increases Main Interest Rate for First Time Since 2008

Polish Central Bank Increases Main Interest Rate for First Time Since 2008
21st January 2011

Poland's central bank raised the benchmark interest rate for the first time since June 2008 to keep inflation from exceeding its target range and the zloty from weakening, signalling it may tighten policy further.

The Monetary Policy Council increased its seven-day reference rate by a quarter of a percentage point to 3.75 percent, matching the forecasts from 17 of 25 economists surveyed by Bloomberg. Eight analysts expected the rate to remain unchanged at a record low for a 19th month.

"Policy tightening is needed because higher rates could strengthen the zloty and minimize the effect of higher fuel and food prices," said Jaroslaw Janecki, chief economist at Societe Generale SA in Warsaw. "Higher rates may influence inflation expectations, which are correlated with headline inflation."

The Polish decision comes after Hungary raised rates twice in two months, pushing the benchmark to 5.75 percent, as consumer-price growth accelerates across eastern Europe. The Czech central bank has signalled it may raise its main rate from a record-low 0.75 percent in the second half of the year.

"Today's decision shouldn't be interpreted as a one-time adjustment of monetary policy," Narodowy Bank Polski Governor Marek Belka said at a press conference in Warsaw after the decision. "The central bank will be watching the situation carefully and take steps if needed."

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