Polish central bank says zloty FX rate key for recovery

WARSAW: The pace of Poland's economic recovery from the COVID-19 pandemic will the central bank said on Wednesday, after it decided to keep its main interest rate on hold at 0.1%.

The bank has repeatedly said that if the zloty is too strong it could harm Poland's recovery, but on Wednesday it dropped its long-standing reference to the dangers of a lack of "visible and more durable" zloty adjustment to the pandemic and rate cuts, after the currency depreciated sharply in March.

The zloty is now more than 2% weaker against the euro compared to mid-February.

"The economic policy measures, including the easing of NBP's monetary policy introduced last year and the expected recovery in the global economy, will have a positive impact on the domestic economic situation," the bank said in a statement.

"The pace of the economic recovery in Poland will also depend on further developments of the zloty exchange rate."

The bank reiterated that it could intervene in foreign exchange markets.

Governor Adam Glapinski has said that he expects rates to remain stable until his term ends in 2022, but rising inflation has led some economists to question whether the bank will be able to stick to its dovish rhetoric.

March CPI was 3.2% year-on-year, leading many economists to forecast that inflation will break through the upper limit of the central bank's target range of 2.5% plus or minus one percentage point in the coming months.

In its statement on Wednesday the central bank said that rising fuel prices and waste disposal charges would probably lead to an increase in inflation in the coming months.

However, it added that the roll-out of vaccines would ease supply-side factors that have increased companies' costs, while inflation would also be curbed by lower wage pressure than before the pandemic.

The central bank also said that it would continue to purchase government and government-guaranteed bonds on the secondary market and would continue to offer bill discount credit, which makes bank loans cheaper.

Poland's benchmark interest rate has been at a record low of 0.1% since May.