Virus Spike Keeps Polish Interest Rates Locked Near Zero
Virus Spike to Keep Polish Rates Near Zero: Decision Day Guide
(Bloomberg) -- Polish borrowing costs are being kept near zero as record new cases of Covid-19 reignite concerns about the economic outlook.
While some central bankers have urged interest-rate increases to be considered next year, analysts see little chance of a move before then. The bank left its benchmark at a record-low 0.1% on Wednesday, as unanimously predicted in a Bloomberg survey.
Despite monthly data signaling the European Union’s biggest eastern economy saw an improvement last quarter, daily infections are now four times what they were in the spring, raising the prospect of restrictions being reimposed on businesses. The pace of recovery may slow in the coming months, the bank said in a statement, pledging to continue asset purchases.
“One shouldn’t expect interest-rate hikes before the end of the terms of most members of the current Monetary Policy Council,” in 2022, said Piotr Bartkiewicz, an analyst at Bank Pekao. “In the event of a more pronounced economic downturn in the coming months as a result of the second wave, it’s likely we’ll focus on non-standard measures.”
Markets agree, pricing in no change to the benchmark for at least a year and pushing yields on government debt toward zero. The zloty, meanwhile, has also slipped, losing 1.9% against the euro last quarter. That’s unlikely to worry the central bank, which has been pushing for a weaker currency to underpin the economic recovery.
Governor Adam Glapinski has called the benchmark’s current level “fair.” Uncertainty about the pandemic and slowing inflation mean monetary policy “has to remain accommodative,” he wrote in the Polish media after September’s rate meeting.
Others aren’t so relaxed. MPC members including Jerzy Kropiwnicki and Eugeniusz Gatnar warn of elevated growth in consumer prices, which rebounded last month. They also say there’s been little benefit from ultra-low interest rates when it comes to business investment, warranting a gradual return of the benchmark toward 1.5% next year.
Wednesday’s rate meeting was the seventh without a news conference. Investors will have to rely on a statement and minutes that will be published a month from now.
Glapinski did give an interview, published Wednesday, to the Catholic quarterly “Apostle of Divine Mercy.” In it, he encouraged commercial banks not to “unnecessarily limit lending to the real sphere of the economy” and talked up the response to the crisis deployed by him and his colleagues.
“As a central bank, we limited the risk to financial stability,” Glapinski said. “Actions were taken quickly, efficiently and on a large scale.”
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