Polish Central Banker Lauds Zloty Interventions During Covid Era

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Interventions aimed at weakening the zloty helped Poland recover from the coronavirus crisis and such tools should be used by emerging-market policy makers, central bank Governor Adam Glapinski said.

Glapinski said a mix of unconventional policies, such as quantitative easing, and conventional tools including foreign-exchange interventions, proved to work well for relatively small and open economies such as Poland’s during the global pandemic.

With Poland’s key interest rate at a record-low 0.1% since shortly after the coronavirus struck, the central bank stepped in to weaken the zloty in December -- the first such move in a decade. Since then, Glapinski said he isn’t targeting any specific exchange rate level.

Polish Central Banker Lauds Zloty Interventions During Covid Era

“We need to focus on keeping the recovery going -- using all means possible,” he wrote in the Official Monetary and Financial Institutions Forum, a central banking think tank. “If this requires foreign exchange intervention to hold down otherwise unacceptable currency appreciation, then that is a legitimate line of defense.”

Glapinski said the National Bank of Poland’s purchases of government securities, started a year ago, inflated its balance sheet by 50% and amounted to 6% of gross domestic product. Still, they pale in comparison to the European Central Bank’s QE worth around a third of euro area GDP.

This means that any potential currency reaction resulting from the Polish easing is dwarfed by the impact of the neighboring ECB, forcing the local central bank to step in and weaken the zloty, according to Glapinski.

‘Exorbitant Privilege’

“QE weakens the exchange rate of the larger country carrying it out,” he wrote. “By enjoying a global or regional ‘exorbitant privilege,’ larger monetary authorities can shift the burden of adjustment on to others.”

Glapinski reiterated that for now inflation “appears under control,” thanks in part to a “far more competitive” global economy than than during the 1970s when prices surged.

“The best way forward for Poland and other emerging market economies is to use a mix of conventional and unconventional monetary policies,” he wrote. “This is a key lesson from the crisis that will serve us well in coming years.”

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