Announcement of the President of NBP, Professor Adam Glapiński to the Polish Press Agency
The spreading coronavirus epidemic is primarily a threat to public health. Therefore, the government is right to take decisive and forward-looking measures to limit the spread of the virus and the risk of subsequent infections. It will be very wise of Poles to stay at home in the near future and radically limit direct contact with other people.
Of course, such measures will cause short-term economic disturbances, because it will be harder for some people to work, some companies will limit sales and the demand for their products will fall. We may also face problems with the so-called supply chain, especially if international transport is partly disrupted. However, such measures, although severe in the short term, will be beneficial in the long run, because they will limit losses in terms of people's health and lives, and thus will also benefit the economy.
We are aware that the situation of enterprises will worsen. This will especially hit transport and some services. We will also be adversely affected by a significant economic downturn in the external environment of our economy, especially in the euro area. Therefore, measures must be taken quickly to reduce the burden on enterprises and people who will be affected by declining income, because they will face a difficult situation, at least temporarily.
It is currently assumed that the impact of the spread of coronavirus on the economy will be temporary and the most severe in the first and second quarter of the year. However, these predictions are subject to considerable uncertainty, as it is difficult to determine how quickly the epidemic will come under control and at what cost.
The main channel through which the epidemic will impact the global and domestic economy is the decline in demand for transport and tourist services and recreation services and culture in the broad sense of the term. The activity of some companies may be restricted as a result of the forced quarantine of employees or the need to stay at home, for example, to look after children. Other channels through which coronavirus impacts the economies of particular countries are the deteriorating business sentiment resulting in reduced purchases of non-food products and the disruption of global supply chains and corporate investment.
Narodowy Bank Polski is carefully monitoring the situation and analysing the need for any measures to be taken. From an operational point of view the most important thing right now is the efficient functioning of the payment system and smooth supply of cash Both of these tasks are carried out smoothly. There is no risk of running out of cash. Currently, it is delivered to commercial banks on an ongoing basis, nationwide, without any delays or restrictions. Due to increased cash withdrawals, in some places, there may be temporary delays in the supply of cash from the logistic centres of commercial banks and cash-handling companies, but there is no question of permanent problems. At the same time, there are no disturbances in the operation of the payment system, which is functioning smoothly and effectively.
The central bank is also monitoring the developments in the economy and in the domestic financial market on an ongoing basis. Despite the turmoil in the global markets, the zloty remains stable and has depreciated only slightly. Similarly, the yields on Polish bonds are low. This is due to the solid foundations of the Polish economy, the absence of imbalances and the positive assessment of the Polish macroeconomic policy by investors.
The major central banks are currently easing their monetary policy by lowering interest rates and some also by providing liquidity to commercial banks and increasing asset purchases. In Poland, banks are not facing liquidity problems. However, NBP is monitoring the situation and if necessary, we are ready to take appropriate measures. In my opinion, the Monetary Policy Council should already support the economy now by lowering interest rates.
At the same time, banks should defer repayment of liabilities for borrowers experiencing a decline in income, which will certainly affect some of their clients. Lowering interest rates is an immediate and direct way to reduce debt costs. Therefore, this is relief for everyone in debt.
By changing interest rates we will not prevent disturbances in supply, nor will we boost demand in the economy in the short term, but we will reduce the burden arising from existing commitments and support the budgets of companies and households, as well as reduce the costs of servicing the public debt. The absence of such measures could exacerbate the problems that will certainly be caused by the spread of coronavirus and the deteriorating sentiment that has already been observed.
At the same time, the decline in demand for non-food goods and services and a sharp decline in commodity prices in the global markets will bring down inflation in the coming quarters below our current expectations. That is why I will suggest the Monetary Policy Council should lower NBP interest rates.
As in other countries, in the current conditions, however, the response from the fiscal policy is also a key measure. I am convinced that the goal of fiscal policy – as that of monetary policy – should be to mitigate the effects of economic losses due to the epidemic and the emergency measures undertaken to stop its spread.