Abstract:

The article aims to provide an analysis of the causes and consequences of changes in Poland's monetary policy in 2020-2021. It describes three major changes: the purchase of state-issued and guaranteed bonds on the secondary market starting in March/April 2020, the central bank’s interest rates cut on three occasions in spring, and foreign exchange interventions in December 2020. The primary goal of the bond purchases was to finance government spending expansion. These unexpected purchases raised the bonds’ market price while decreasing their yields, enabling NBP to tighten its control over interest rates. This coincided with a series of interest rate cuts, intensifying the central bank's real negative rates. A primary motive for NBP's foreign exchange interventions at the end of 2020 that weakened the zloty exchange rate was to maximize its profits from positive exchange differences. Poland's new monetary policy brought significant benefits to the government, increasing tax revenue and reducing the cost of public debt servicing. The resulting increase in inflation raised the question of whether Poland's monetary authorities were fulfilling their constitutional mandate. Poland's zloty has lost purchasing power both towards foreign currencies and internally lately. Poland's monetary policy is hindered by the surplus liquidity in the banking system, which negatively impacts NBP's ability to use its financial instruments. Due to Poland's inability to handle the surplus for years, its monetary policy has become less important. NBP has recently faced increasing inflationary pressure. In addition to institutional changes, these dilemmas would also require a review of its monetary policy and its principal purpose.