Dr Marek Porzycki Chair for Economic Policy

 Euro area quantitative easing – ECB expanded asset purchase programme, 22 January 2015, and recent monetary policy decisions in December 2015  Fed monetary policy decisions in December 2015 – first interest rate hike since 2006

 Poland’s monetary policy after the government change following the Oct 2015 election - current monetary situation: prolonged deflation - new appointments to the NBP decision- making bodies ongoing and expected in further loosening of the monetary policy to be expected? - plans to introduce a „bank tax” and its possible impact on the money supply -

 announced on 22 January 2015, started in March ml/is en.html  coverage: bonds issued by euro area central governments, agencies and European institutions  amount: 60 bn EUR monthly  duration as announced in Jan 2015: „until at least September 2016 and in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term”.

 „Aimed at fulfilling the ECB’s price stability mandate, … to address the risks of a too prolonged period of low inflation.”  „situation in which most indicators of actual and expected inflation in the euro area had drifted towards their historical lows”  potential second-round effects on wage and price- setting (  result of expectations)  „forceful monetary policy response” needed  context: key ECB interest rates are already at their lower bound (  „pushing on a string”)

 making access to finance cheaper for firms and households  supporting investment and consumption, and ultimately contributing to a return of inflation rates towards 2%  purchase of bonds against central bank money, „which the institutions that sold the securities can use to buy other assets and extend credit to the real economy. In both cases, this contributes to an easing of financial conditions.”

 controversial issue resulting from: - complex structure of the Eurosystem - varying creditworthiness of EU governments  differences in credit quality of bonds  coordination of purchases by the ECB (  control over money supply)  decentralised implementation by the Eurosystem central banks (NCBs)  loss-sharing between NCBs on bonds issued by EU institutions (12% of purchases) and on direct purchases by the ECB (8%)  no loss-sharing on the remaining 80% - purchases by NCBs  NCBs alone will bear the credit risk of the respective sovereign bond issuer  credit quality criteria applicable in principle

 deposit rate decreased by 10 basis points to -0.30%  further move into negative territory  interest rate on the main refinancing operations and the interest rate on the marginal lending facility unchanged at 0.05% and 0.30% respectively  the expanded asset purchase programme extended at least until March 2017, „in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term”, in unchanged amount of monthly purchases of €60 billion  en.html en.html

 underlying factors: - moderate expansion of economic activity - improvement in the labor market - inflation below long-term objective of 2%, expected to rise in medium term  the target rate for the federal funds rate (corresponds to the deposit rate) raised from 0,25% to 0,5%  discount rate (corresponds to the refinancing rate) raised from 0,75% to 1.00%  s/monetary a1.pdf s/monetary a1.pdf

 last decisions by the Monetary Policy Council: interest rates unchanged at 0,50% (deposit rate), 1,50% (reference rate) and 2,50% (main refinancing rate) en.pdf  deflation persists since mid-2014, opinions vary whether return to positive rates of inflation is expected  8 out of 9 members of the Monetary Policy Council will be appointed in January and February 2016  the term of office of the NBP President ends in June 2016  new appointments likely to be „doves”  a lowering of interest rates cannot be excluded

 a crucial component of the new government’s economic policies  Law on tax on certain financial institutions adopted on 29 December 2015 and subsequently amended in the Senate, final vote in Parliament pending  entry into force planned from 1 February 2015  banks to be taxed 0.44% of the value of their assets per year  banks and credit unions with assets under 4bn PLN to be exempted  bank assets include loans  additional cost on lending  restriction on lending and on the money creation mechanism

 the „bank tax” will make interest rate cut unlikely to boost lending  no increase in inflation, no increase in economic growth  interest rate cut may contribute to the depreciation of the PLN  possibility of some „cost-push” inflation; possibility of short term improvement of competitiveness of Polish exports  costs of the „bank tax” imposed on banks are likely to be passed on to the consumers in result of increased bank fees