The NBP has been buying out foreign currency on the market since mid-December 2020 in an attempt to make sure that the Polish currency, the złoty, does not strengthen itself. The NBP head Adam Glapiński believes that the mounting pressure to increase the value of the zloty is very worrying and harmful.
“It is harmful from the point of view of the rebounding growth of our GDP and maintaining export dynamic,” he explained in the interview for portal Obserwator Finansowy. In his opinion, given the forecast of a low level of inflation in 2021, room has been made for potential and decisive interventions from Poland’s central bank. Poland has gradually reduced its main interest rate during the coronavirus pandemic from 1.5 per cent to just 0.1 per cent. However, the zloty has weakened only slightly and temporarily, in part due to loose monetary policy by major central banks, Glapinski pointed out. The NBP head underlined that the lack of “exchange rate adjustments” weakens the effects of the natural mechanism. “This mechanism allows economies with a floating exchange rate to soften the weakening of economic sentiment, strengthen the prospects for recovery and avoid the risk of excessive disinflation,” Glapiński said. He also believed that the lack of a clear and long-term adjustment of the zloty’s exchange rate to the global shock and loosening of the NBP’s monetary policy is “partially a signal pointing to the positive evaluation of the Polish economy by investors.” NBP The NBP governor Adam Glapiński said that the aim of buying foreign currency was to “strengthen the impact” of looser monetary policy on the zloty, and the economy as a whole. This issue was associated with central banks continuing to loosen their monetary policies through purchasing assets, increasing liquidity and announcements that they plan to maintain low and even negative interest rates over the next few years. All of these actions are being conducted on a broader scale than the Polish central bank current action is.
Moreover, exchange rate plays an important role in the Polish economy as “a parameter which shapes the broader restrictions for monetary conditions and shock absorbers”. Glapiński noted that in 2008-2009, as a response to the global financial crisis, the zloty was submitted to a strong currency depreciation. This, alongside automatic stabilizers in fiscal policy, was the most important factor which allowed Poland, as the only country in the EU, to avoid recession. “In comparison, in 2020 we experienced recession which forced the NBP to decisively loosen monetary policy. Simultaneously, the zloty weakened only temporarily and on a limited scale. Ultimately, this meant that the effective exchange rate of the currency had not changed compared to the level prior to the pandemic,” the NBP head explained.