Poland's central bank has raised interest rates for the third time in a row.

The key interest rate increases by 0.5 percentage points to 1.75 percent, all other interest rates are increased by the same amount.

In doing so, the central bank is trying to dampen the annual rate of inflation, which recently jumped to 7.7 percent.

The largest economy in the Eastern European EU countries is struggling with the highest rate of inflation in more than two decades.

The renewed interest rate hike shows the U-turn of the central bank under the leadership of Governor Adam Glapiński, who initially considered interest rate hikes unnecessary and followed the course of the European Central Bank.

Andreas Mihm

Business correspondent for Austria, East-Central and Southeastern Europe and Turkey based in Vienna.

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Analysts like Jakub Rybacki from the Polish Economic Institute expect a further tightening of monetary policy with interest rates of 3 percent and more.

The central bank said that expectations for inflation and economic growth, but also the situation on the labor market, are included in the assessment of the situation.

Commerzbank analyst Tatha Ghose wrote: "With a key interest rate of 1.75 percent and inflation of 7.7 percent, it will hardly reassure the foreign exchange market that the tightening depends on future data." The Polish currency, the zloty, also lost value .

Further inflationary pressure could build up through new government aid programs against the energy price crisis in the billions if consumption continues to rise.

Further rate hikes expected

The tense situation in the labor markets and the recovery from the pandemic-induced downturn, combined with global disruptions in supply chains and rising energy costs, have made inflation rates in Central and Eastern Europe some of the highest on the continent. That puts the central banks under pressure. The Hungarian central bank raised the interest rate for one-week deposits by 20 basis points to 3.30 percent on Thursday. It was the fifth rate hike in less than three weeks. Against the background of the highest inflation rate since 2007, at 7.4 percent, and the highest monthly budget deficit ever recorded, a further increase in the key interest rate from currently 2.1 percent is expected on the markets for Tuesday.

The Czech National Bank has raised interest rates the most.

Currently it is 2.75 percent, a further increase of 0.5 percentage points in December or February is in the room.

In the FAZ conversation, however, Vice Governor Marek Mora announced a less aggressive course: “We have done enough.

Now it comes down to the fine tuning. "

In Ukraine, too, the central bank raised interest rates by 50 basis points on Thursday, the key rate is now 9 percent, and inflation is less than 11 percent.

The Serbian central bank kept its key interest rate unchanged at 1 percent with annual inflation of 6.6 percent.