MNI INTERVIEW: NBP Hike Risks Grow As War Drags On - Zarzecki

The National Bank of Poland should look through first-round inflation effects from the Iran war, though risks of a 2026 rate hike will grow the longer the conflict persists, Monetary Policy Council member Marcin Zarzecki told MNI.

“I would assign a low-to-moderate probability to a rate hike before year-end, though materially higher than just a few months ago,” Zarzecki said, noting that March’s inflation of 3.2%, driven by a 15.6% monthly jump in fuel prices, and core inflation expected to hover around 3.0%, has “fundamentally altered the risk landscape.”

Reductions in excise and VAT, together with price caps, are partially shielding households from higher fuel costs, but may prolong upward price pressures, he said in written responses to questions, after the NBP held rates at 3.75% on May 6, citing geopolitical uncertainty. (See MNI NBP WATCH: Rates Held At 3.75% Amid Iran War Uncertainty)

“In an environment of supply-side inflation pressure from energy prices, fiscal stimulus compounds the challenge. The CPN fuel programme itself – while helping households in the short run – has a fiscal cost and may delay price adjustment.”

Were the conflict to quickly de-escalate and oil drop toward the USD75 per barrel implied by futures curves for late 2026, inflation would fall from 3.3% in December to 2.4% by March 2027, “well within the tolerance band,” Zarzecki said.

“That said, should the Hormuz blockade persist into H2 and oil prices remain above USD95 a barrel, a pre-emptive tightening in Q4 cannot be ruled out. The July projection will be decisive for any such reassessment.” (See MNI INTERVIEW: NBP May Hike This Year- Ex-MPC's Hardt)

The experience of 2021–2022 adds to the sense that looking through a supply shock is viable only when expectations remain anchored and core inflation stays contained, Zarzecki said. Eurozone five-year breakeven inflation has edged higher, and domestic expectations have risen, he noted.

“The risk of not acting lies in second-round effects: energy cost pass-through to services prices, potential acceleration in wage demands, and the widening wedge between producer and consumer prices. 

“PPI is still negative at –0.8% y/y, but the gap is narrowing. My assessment: we can look through the shock only if it is short-lived. The longer the Hormuz blockade persists, the thinner the case for patience becomes.”

CORE INFLATION

Policymakers should watch for signs that core inflation is moving consistently above 3%, rather than any single-month blip, he said, pointing to NBP consumer and analyst surveys, market-based measures of inflation expectations, and wage growth trackers.

A material and durable increase in the above, “plus a clear projection showing CPI remaining above the 3.5% upper tolerance band through the medium-term horizon, with no credible disinflationary offset from external demand weakness,” would warrant hiking, Zarzecki said.

While rates are “moderately restrictive,” rapid growth in M3 money supply, household deposits and credit growth, and mortgage demand over the last 12 months, create a more “nuanced” picture, he said.

“These dynamics suggest that the transmission of past rate cuts is active, and that the restrictiveness of monetary conditions is diminishing in practice. This is one additional reason why caution about further easing is warranted,” he said.

Zarzecki, appointed to the MPC in December 2025 by President Karol Nawrocki, whose supporters include the opposition Law and Justice party, said fiscal policy is a “significant concern from a monetary policy perspective, and I would not minimise it.”

DEFENCE SPENDING

Poland’s general government deficit was the second-highest in the EU in 2025, he noted, while public expenditure increased by approximately 8.8 percentage points of GDP relative to 2019. 

Public investment reached 5.2% of GDP in 2025, exceeding the government’s objective, he said, with the expansionary fiscal stance creating a demand-side impulse that runs counter to the disinflationary objective of monetary policy and raises structural sustainability questions.

A key point of contention between Nawrocki and NBP President Adam Glapinski on the one hand, and Prime Minister Donald Tusk on the other, is how to fund an expansion of defence spending from 4% of GDP, with the government favouring the use of EUR43 billion in EU loans rather than using profits on gold held by the central bank.

“The defence imperative is real and urgent [...] But defence spending and fiscal consolidation are not inherently contradictory – they require prioritisation within the expenditure envelope,” Zarzecki said. (See MNI INTERVIEW: Defence Spend Shrinks Polish Fiscal Space-Toroj)