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Poland Monetary Policy April 2020

Poland: Central Bank slashes rates to fresh all-time low in April; reinforces quantitative easing

On 8 April, the National Bank of Poland (NBP) slashed the reference rate from 1.00% to a new record low of 0.50%, in a bid to cushion the economic impact of coronavirus. In addition, the Central Bank cut the Lombard rate to 1.00%, the rediscount rate to 0.55%, and the deposit rate to 0.00%. At the same time, the Bank reinforced its commitment to support financial markets and contribute to the normal functioning of the banking system through a set of strong measures aimed at ensuring liquidity.

The Bank’s decision was prompted by the economic damage caused by coronavirus, compounded by expected associated downside pressures on prices. In an effort to keep lending channels open and support commercial banks, the Bank will continue to provide liquidity to the banking sector by extending repo operations and refinancing new loans granted to companies and households. Moreover, the NBP strengthened its quantitative easing program, announcing it will keep purchasing government bonds in the secondary market while broadening the list of eligible instruments to other state-guaranteed bonds, thus providing further liquidity to the government bond market.

The spread of Covid-19 and the associated containment measure are taking a heavy toll on economic activity and sentiment, and the short-term drop in activity is expected to be sizable. Looking further ahead, significant uncertainty stems from the duration of the coronavirus outbreak and the associated containment measures, although solid macroeconomic fundamentals should help the economic recovery once the emergency is over. In terms of price pressures, faltering domestic demand and lower oil prices should more than offset the NBP’s expansionary monetary stance and thus contribute to a marked decrease in inflation in the short- to medium-term.

The next monetary policy meeting is scheduled for 5–6 May.

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