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Poland Monetary Policy July 2020

Poland: Central Bank keeps rates at all-time low level in July; reaffirms quantitative easing

On 14 July, the National Bank of Poland (NBP) kept the reference rate unchanged at an all-time low of 0.10%. In addition, the Central Bank held the Lombard rate stable at 0.50%, the deposit rate at 0.00% and the rediscount rate at 0.11%. At the same time, the Bank reaffirmed its commitment to support liquidity in the financial markets and contribute to the normal functioning of the banking system.

The Bank’s decision to keep interest rates at ultra-low levels is meant to help the economic recovery following the blow from the health crisis and associated lockdown, and comes against sustained inflationary pressures. In an effort to keep supporting lending at favorable rates, the Bank will continue to discount credit granted to enterprises by banks aimed at refinancing loans. Additionally, the NBP reaffirmed its quantitative easing program, announcing it will keep purchasing government bonds in the secondary market to keep providing liquidity to the government bond market.

Looking ahead, the monetary policy stance looks set to remain largely accommodative, in order to prevent job losses and support an economic recovery, which will also benefit from a robust fiscal support. That said, risks are tilted to the downside, stemming from elevated economic uncertainty ahead weighing on investment decisions, weaker wage growth and an overvalued currency.

The next monetary policy meeting is scheduled for 8–9 September.

Commenting on the meeting, Rafal Benecki, chief Poland economist at ING, stated:

“In our view, the central bank remains vigilant. If the economy suffers in 2H20 due to the second wave of Covid-19, a new fiscal program and more QE is likely to be on the agenda reaching at least 7-8% of GDP vs about 4.5% of GDP now. We estimate next year’s government deficit to be around 5% of GDP. The government may face obstacles to finance it without central bank support.”

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