The National Bank of Poland (NBP) raised its reference rate for the sixth time in as many months, hiking it by 75bp to 3.5% on March 7. Analysts say that the rates could go well beyond 5% this year.

The increase comes as, in the wake of the war in Ukraine, the Polish zloty reached an all-time low against the euro earlier in the week and also fell substantially against the US dollar and other major currencies. The incoming shock of energy prices, as the West is mulling a ban on imports of Russian energy commodities, has also presented the policymakers with a new and more severe risk of heightened inflation.

The dramatic rise in global macroeconomic uncertainty is translating into “marked deterioration of sentiment in financial markets and depreciation of some currencies. Prices of natural gas, oil, and coal, as well as prices of some agricultural commodities, have increased again,” the NBP said in a statement.

“At the same time, global supply chain disruptions continue and international shipping costs are still elevated. This will probably contribute to a further rise in inflation worldwide,” it added.

The NBP now expected Polish inflation to fall within the 9.3%–12.2% range in 2022, a significant change compared to 5.1%–6.5% expected in the central bank’s previous projection from November.

Inflation will remain elevated in 2023 at 7%-11% in 2023 (November projection: 2.7%-4.6%) and is expected to ease only in 2024, at 2.8%–5.7%.

That means the NBP’s tightening cycle is far from over, analysts say.

“The marked deterioration in the inflation outlook due to the war in Ukraine is likely to mean that rates rise much further in the coming months, to 5.75%,” Capital Economics said.

“We see the peak of the cycle at 4.5% to be reached by July 2022 but the risks are currently tilted toward more aggressive tightening,” Erste said.

The NBP also said that economic growth in Poland will weaken, although it will still be relatively fast. The central bank expects GDP expansion at 4.4% this year (4.9% in November projection), at 3.0% (5.0%) in 2023 and at 2.7% in 2024.