NBP and RPP actions related to the worsening situation of Polish enterprises
Banking and Finance Poland Alert
The National Bank of Poland (NBP) and the Monetary Policy Council (MPC) reacted to the worsening situation of enterprises, the risk of loss of liquidity and the emergence of extraordinary needs of the state budget in connection with the epidemic.
As announced by the NBP in a communiqué following the Management Board meeting on 16 March 2020, NBP:
it will provide liquidity to banks by concluding so-called repo transactions,
implement large-scale purchase of Treasury bonds on the secondary market,
will introduce a discount credit to refinance loans granted by banks to non-financial companies.
At the same time, it recommended that the MPC substantially reduce the reserve requirement rate, and called for measures to reduce the burden on businesses. As experts point out, the implementation of the purchase of treasury bonds on the secondary market de facto means that the NBP has decided to finance the State Treasury's borrowing needs in this way (treasury bonds issued by the Ministry of Finance and taken up by commercial banks will be purchased by the NBP).
On the day after the NBP Management Board meeting, the Monetary Policy Council took decisive decisions concerning a significant reduction of interest rates. According to the announcement published after the MPC meeting of 17 March 2020:
The Council decided to reduce the main interest rate, i.e. the NBP reference rate by 0.5 pp, i.e. to 1.00%, which is also the lowest in history. At the same time, the Council set the following level of the remaining NBP interest rates:
lombard rate at 1.50%;
deposit rate 0.50%;
rediscount rate 1.05%;
discount rate on bills of exchange 1.10%.
In accordance with the recommendation of the NBP Management Board of the previous day, the Council also decided to reduce the mandatory reserve rate from 3.5% to 0.5%, as well as to increase the interest rate on funds held in the form of mandatory reserve from 0.5% to the NBP reference rate.
The reduction of interest rates means, among others, that the costs of financing made available to businesses and households will decrease.