Poland's Monetary Council cuts basic reference interest rate

Poland's Monetary Policy Council (RPP) on Wednesday cut the country's basic reference interest rate by 40 bps to 0.10 percent.

The National Bank of Poland's lombard rate has been cut to 0.50 percent. The deposit rate has been left at 0.0 percent. The rediscount rate is at 0.11 percent.

The RPP's resolution comes into effect on May 29.

In its press release on the RPP May 28 meeting, the Council wrote that weaker activity in the global economy, including in Poland, together with lower commodity prices in international markets will contribute to a further decrease in

inflation. Consequently, the risk of inflation falling below the NBP inflation target in the monetary policy transmission horizon prevails. Considering the above-mentioned circumstances, the Council decided to cut the NBP interest rates again.

The Council noted that economic conditions in Poland in the first months of the year were relatively

favourable, but GDP growth on an annual basis decelerated. April data point to a significant fall in economic activity, a decrease in wages and employment in enterprises as well as a deterioration of consumer and business sentiment. At the same time inflation declined markedly and the annual change in producer prices was negative.

As the restrictions related to the pandemic are lifted, a recovery in economic activity could be expected. This would be supported by economic policy measures, including monetary policy easing by NBP, that mitigate the fall in employment, supporting incomes of households and financial situation of enterprises. The scale of the expected recovery

could be – in turn – curbed by uncertainty regarding the consequences of the pandemic, lower incomes and weaker sentiment of economic agents than in previous years.

The RPP wrote that the National Bank of Poland (NBP) will continue to 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, reads the press release. Furthermore, the NBP will offer bill discount credit aimed at refinancing loans granted to enterprises by banks.

The Council stressed that the NBP monetary policy easing mitigates the negative economic impact of the

pandemic, limiting the scale of the economic activity fall and supporting incomes of households and enterprises. Consequently, it alleviates the fall in employment and deterioration of financial situation of enterprises, thus being conducive to quicker recovery after the abatement of the pandemic. The measures undertaken by the NBP reduce

the risk of inflation falling below the NBP inflation target in the medium term and – due to their positive impact on financial situation of debtors-- are conducive to enhancement of financial system stability.