WARSAW, Poland (AP) — Poland’s central bank lowered its key interest rate by 75 basis points on Wednesday despite the country’s double-digit inflation rate. The move prompted concerns by economists that the central bank was providing an economic stimulus to help the governing party ahead of parliamentary elections next month.
The National Bank of Poland’s monetary policy council announced that it was cutting the reference rate from 6.75% to 6%.
Economists had been expecting a rate cut given an election planned for Oct. 15 in which the conservative governing party, Law and Justice, is fighting for an unprecedented third term. The central bank’s governor is an ally of the party and has taken actions in the past to help the government.
However, the extent of the cut took economic and political observers by surprise given that inflation, while down from over 18% earlier this year, is still running at over 10% annually.
In conditions of high inflation, central banks tend to raise interest rates.
The Polish currency, the zloty, immediately lost value against other currencies.
The move will provide relief to Poles with mortgages who have seen their payments rise in recent times. It should also give a boost to the economy. But it risks creating even greater inflationary pressure at a time when Poles are already suffering from rising prices.