March 9, 2020 / 9:19 AM / a month ago

As coronavirus spreads, two Polish central bankers tout rate cuts

WARSAW (Reuters) - The coronavirus outbreak is an argument for cutting rates quickly, Polish central banker Eryk Lon said on Monday, the second rate-setter in three days to speak in favour of monetary easing, while a third questioned the logic of easing.

FILE PHOTO: A temporary emergency room for coronavirus threat is pictured at University Clinical Hospital in Wroclaw, Poland, March 4, 2020. Agencja Gazeta/Krzysztof Cwik via REUTERS

Caught between rising inflation and slowing growth, Poland’s central bank has so far opted to leave rates on hold, but the potential economic fallout of the coronavirus has increased bets on a cut.

Polish forward rate agreements price in chances of more than two interest rate cuts over the next year.

“Due to the significance of this threat, the possibility of lowering interest rates in our country should be seriously considered,” Lon wrote in an article for the website of Polish religious radio station Radio Maryja.

“It is worth acting ahead of time, when there are threats that may result in a slowdown in economic growth, and not only when the slowdown occurs,” said Lon, who is seen as the most dovish member of Poland’s Monetary Policy Council (MPC).

Lon’s article followed comments by MPC colleague Jerzy Zyzynski, who was quoted by state-run news agency PAP as saying on Saturday he would favour a 50 basis point rate cut in May.

“It all depends on what happens to the economy. If the rate of economic growth falls clearly below 3% and inflation falls, it will be a strong reason to lower rates,” PAP quoted him as saying on the sidelines of a conference.

Jerzy Kropiwnicki wrote in a blog post on Monday, however, that cutting rates would not repair damage to global supply chains caused by coronavirus.

“I do not understand how lowering interest rates ...would address this problem (with supply chains),” Kropiwnicki wrote.

The Polish central bank’s inflation projection showed that it expects gross domestic product growth to slow to 3.2% in 2020 from 4.0% in 2019. Inflation is forecast to rise to 3.7% in 2020 from 2.3% in 2019.

“A more dramatic course of the coronavirus epidemic combined with a sustained slowdown in global trade and the deteriorating business sentiment would translate into a downward revision of the forecast economic growth in Poland,” the bank wrote in its inflation report.

Poland’s benchmark interest rate has been at a record low of 1.5% since the central bank ended an easing cycle in 2015. While there had been calls from some MPC members to hike rates in the face of surging inflation, cuts are now seen as more likely as central banks scramble to deal with coronavirus.

Reporting by Alan Charlish; additional reporting by Agnieszka Barteczko and Jason Hovet; Editing by Catherine Evans and Ed Osmond

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