Poland: Central Bank slashes rates in extraordinary meeting in March
March 19, 2020
The National Bank of Poland (NBP) slashed the reference rate from 1.50% to a record low of 1.00% at an extraordinary monetary policy meeting held on 17 March in a bid to shield the economy from the negative spillovers from the spread of coronavirus. In addition, the Central Bank cut the Lombard rate to 1.50% and the rediscount rate to 1.05%, while leaving the deposit rate stable at 0.50%. At the same time, the Bank introduced a series of strong measures aimed at granting liquidity, contributing to the normal functioning of the banking system, supporting financial markets and thus tackling the economic shock from coronavirus.
The Bank cut the reserve requirements ratio from 3.5% to 0.5% and increased the remuneration of required reserves from 0.5% to 1.0% (pegging it to the reference rate level), in an effort to keep lending channels wide open and support commercial banks. For the same purpose, it will provide liquidity to the banking sector by extending repo operations and will refinance new loans granted to companies and households under favorable interest rates conditions. Last but not least, the NBP introduced the first Polish quantitative easing program, announcing it will purchase government bonds in the secondary market, providing liquidity to the government bond market and keeping yields in check in an attempt to minimize the risk of contagion from the sovereign to the financial sector.
Looking ahead, significant uncertainty stems from the duration of the coronavirus outbreak and the associated containment measures, which will take a heavy toll on the economy and will contribute to a marked decrease in inflation in the short- to medium-term.
The next monetary policy meeting is scheduled for 7–8 April.