June 3, 2020 / 8:44 AM / a month ago

Polish central banker wants rates to remain unchanged through 2021

WARSAW, June 3 (Reuters) - Polish central banker Eryk Lon said interest rates should remain at current levels in 2020 and 2021, after they were unexpectedly reduced in May to historically low levels to help the economy to cope with the impact of the coronavirus pandemic.

The Polish central bank cut its benchmark interest rate to 0.1% from 0.5%, meaning the cost of credit has been lowered for three months in a row by a total of 140 basis points.

“I see no arguments for the need for further interest rate cuts. It seems that they should remain at their current level for a longer time, also in 2021,” Lon wrote in response to Reuters’ questions.

Lon is one of the most dovish members of the Polish central bank’s monetary policy council and has many times put forward motions for interest rate cuts.

Government forecasters have predicted the economy may contract in the second quarter by 10%, and partial economic data released in recent days turned out to be weaker than expected.

Lon said he hoped that the recent increase in the PMI indicator was a signal of a gradual recovery in the Polish economy.

The IHS Markit Purchasing Managers’ Index (PMI) for manufacturing rose to 40.6 in May from April’s record low of 31.9, but remained below the 50.0 line that separates growth from contraction. It was, however, above the 35.6 forecast by analysts in a Reuters poll.

“I think that the improvement in this ratio may also be the result of the NBP’s expansionary monetary policy,” he said.

The coronavirus toll in Poland - 24,395 infected and 1,092 dead - is much lower than in countries such as Spain and Italy and since late April the country’s lockdown has been gradually relaxed, although Poland’s borders remain closed and schools are still shut. (Reporting by Pawel Florkiewicz. Editing by Jane Merriman)

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