On 8 March, during the last meeting of the Monetary Policy Council, the National Bank of Poland raised interest rates once again by 0.75 pp to 3.5%. The increase also covered the so-called Lombard rate, which is currently 4%.

The Monetary Policy Council (MPC) justified the current increase with the risk of inflation running above the NBP's inflation target throughout the monetary policy horizon. Based on the initial data, inflation in January 2022 was above 9%. In the MPCs’ view, key factors influencing inflation are: (i) the significant increase of prices of energy and agricultural raw materials, (ii) regulated tariffs for electricity, natural gas and heat and (iii) the economic impact of the Russian war against Ukraine.

How will the interest rate increase influence tax settlements?

The Lombard rate, determines the maximum level of interest on loans that the central bank (NBP) grants to commercial banks against securities. Although this ratio is primarily the basis for determining the maximum level of loans interest, it also affects other financial parameters, e.g. the amount of interest on tax arrears.

The interest rate for tax arrears is equal to the sum of 200% of the base Lombard loan interest rate and 2%, but cannot be lower than 8%

For several years, the interest rate has remained at the minimum statutory level - 8% - but this has changed with the recent upratings. Importantly, if the Lombard rate changes, the interest rate on tax arrears, is reduced or increased accordingly, starting from the date on which the rate was changed

The MPC's increase of the Lombard rate to 4% means an increase in the interest rate on tax arrears to 10%, according to the formula: (4% x 2) + 2% = 10%. Since the MPC Resolution entered into force on 8 March 2022, the new interest rate should apply from that date.

The Lombard rate increase can however be welcomed by tax payers who apply for overpayments as they are subject to the same interest rates as tax arrears.