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Financial News: Poland Cuts Key Rate, Reserve Ratio To Cushion

Poland Cuts Key Rate, Reserve Ratio To Cushion Covid-19 Impact

03/17/2020 - 13:05:00 (RTTNews)

(RTTNews) - Poland's central bank on Tuesday slashed its key interest rate and reserve requirement ratio, and announced stimulus measures to support the economy amid the slowdown triggered by the spread of the coronavirus, or Covid-19.

The Monetary Policy Council decided to cut the key reference rate by 50 basis points to a fresh record low 1 percent, the National Bank of Poland said in a statement after an emergency meeting. The bank had left the rate unchanged in the March 3-4 scheduled policy session. The previous change in the reference rate was a half-basis point cut in March 2015. The lombard rate was lowered to 1.50 percent from 2.50 percent, while the deposit rate was kept at 0.50 percent. The rediscount rate was cut to 1.05 percent from 1.75 percent.

Policymakers decided to decrease the required reserve ratio from 3.5 percent to 0.5 percent. The central bank increased the remuneration of the required reserves from 0.5 percent to the reference rate level.

The coronavirus epidemic is expected to lead to a slump in economic activity in the short run, which could be worsened by a global slowdown, the bank said. A recovery might happen after several countries implement stimulus packages, the bank said. Poland's inflation, which was 4.7 percent in February, could significantly ease in the coming months due to the expected economic slowdown and the collapse in oil prices. "Consequently, latest forecasts indicate a higher probability of inflation decreasing more quickly in 2020 than anticipated in the March projection and of inflation falling below the NBP inflation target in the monetary policy transmission horizon," the NBP said in a statement. "In these circumstance, the Council decided to cut the NBP interest rates."

The central bank also decided to provide liquidity to the banking sector using repo transactions, and purchase government bonds on the secondary market to boost liquidity there. The bank will also offer bill discount credit aimed at refinancing new loans granted to economic entities by banks.

"In the Council's assessment, all the above-mentioned measures will mitigate the negative economic impact of coronavirus spread, while further ahead they will contribute to recovery in domestic economic activity and will be conducive to inflation running at the level of the NBP inflation target in the medium term," the NBP said. The quantitative easing, or QE, opens the door for the finance ministry to announce a large anti-crisis fiscal policy package, avoiding the risk of T-bonds market collapsing as experienced during the 2008 or 2012-13 yields spike, ING economists said. Details of the fiscal stimulus, which ING expects to be about 2 percent of GDP, is likely to be announced on Wednesday.

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