By CentralBankNews.info
Poland’s central bank cut its benchmark interest rate for the second time in less than a month and will begin purchasing government securities and government-guaranteed debt in the secondary market to ease the economic impact of the spread of the Covid-19 pandemic, which it said could result in a “very sizable” drop in activity in short run.
The National Bank of Poland (NBP) cut its reference rate by another 50 basis points to 0.50 percent and has now cut it by 100 basis points following an earlier cut of the same size on March 17, its first rate cut in five years.
The central bank, or Narodowy Bank Polski (NBP) in Polish language, said it would also continue to provide liquidity to the banking sector on top of its normal operations.
After today’s decision, the bank’s Lombard rate is at 1.0 percent, the deposit rate at 0.0 percent, the rediscount rate at 0.55 percent and the discount rate 0.60 percent.
NBP said the timing and scale of the purchase of government securities and government-guaranteed debt on secondary markets would depend on market conditions and it would also offer bill discount credit aimed at refinancing loans by banks to businesses.
The purchase of government debt is aimed at ensuring liquidity in these markets and enhancing the impact of the central bank’s rate cuts, thus strengthening the monetary policy transmission.
“The measures undertaken by NBP are aimed at easing financing conditions in the economy and mitigating the negative economic impact of the pandemic, thus being conducive to maintaining macroeconomic and financial stability,” the bank said, adding this would also contribute to an economic recovery and reduce the risk of inflation falling below NBP’s target.
NBP said measures aimed at limited the spread of the coronavirus are reducing economic activity and a drop in the short run could be very sizable.
This decline will be accompanied by a deterioration in the labour market and a fall of disposable income of households.
A global economic downturn together with lower commodity prices and weaker domestic demand will also lead to a “marked deterioration of price growth,” the bank said.
Further ahead, NBP said economic activity should gradually recover, supported by fiscal measures both in Poland and other countries along with the country’s strong fundamental, low debt and high competitiveness.
The National Bank of Poland issued the following statement:
“Information from the meeting of the Monetary Policy Council held on 8 April 2020
The Council decided to cut the NBP reference rate by 0.50 percentage points, i.e. to 0.50%. At the same time, the Council set the remaining NBP interest rates at the following levels:
▪ lombard rate at 1.00%;▪ deposit rate at 0.00%;▪ rediscount rate at 0.55%; ▪ discount rate at 0.60%.
NBP will continue – apart from basic operations – to provide liquidity to the banking sector using repo transactions. At the same time, NBP will purchase government securities and government-guaranteed debt securities on the secondary market as part of the structural operations. The timing and scale of the operations will depend on the market conditions. Furthermore, NBP will offer bill discount credit aimed at refinancing loans granted to enterprises by banks.
The incoming information suggest that COVID-19 pandemic and measures introduced to counteract its further spread contribute to the fast deepening fall in activity in many economies as well as to a very strong deterioration of sentiment. At the same time, global economic growth forecasts, including those for Poland’s main trading partners, have been substantially revised downwards. In order to mitigate the negative economic effects of the pandemic and ensure conditions for fast economic recovery after current disruptions abate, many countries introduce wide-ranging fiscal stimulus packages. Chinese economy shows first signs of economic recovery after a strong fall in activity at the begging of the year.
Many central banks have substantially eased monetary conditions by lowering interest rates, providing liquidity to the banking sector and pursuing asset purchases.
Recent forecasts indicate that after the abatement of the current disruptions the global economic conditions should improve, supported by fiscal measures and monetary easing. At the same time, the pace and scale of the improvement will depend on the impact of disruptions on economic agents’ income and sentiment in the longer run.
In the financial markets – due to the globally deteriorating economic outlook – risk aversion remains high leading to increased price volatility of many assets and tightened financial conditions. At the same time, global oil prices have fallen significantly since the begging of the year, accompanied by decreasing prices of some food commodities.