Interest rates should fall to zero, bank economist believes

Interest rates are already low. Some central banks have even introduced negative rates. One economist, meanwhile, believes that in [...] https://www.pinterest.com/pin/1085437947660215829/

Interest rates are already low. Some central banks have even introduced negative rates. One of the economists is of the opinion that they should fall even lower in Poland. Interest rates at zero? Credit Agricole Bank Poland chief economist Jakub Borowski told PAP that "there are a number of arguments for further monetary easing by the MPC. "Starting with the exchange rate issues, despite the unprecedented scale of the economic shock, the zloty exchange rate is strengthening and approaching the pre-lockdown levels, while the earlier weakening of the zloty was not significant and (...) we did not observe a sell-off of Polish bonds on such a scale as in 2008 and 2009. At that time we saw a strong outflow of capital and a very strong depreciation of the zloty, which was partially a correction after its strong revaluation before the crisis," Borowski said. - Borowski said. Here are what the economist's conclusions are: "(...) the exchange rate channel worked poorly, and for a small open economy, the exchange rate is an important element in stabilizing the economy. Given Poland's strong supply chain linkages, the impact of exchange rate depreciation on net exports and aggregate demand will be limited. This is a very important rationale behind monetary easing - for the exchange rate channel to help the economy the depreciation must be significant and sustained." He adds that the Monetary Policy Council will cut the benchmark interest rate by 45 bps to 0.05 percent in May. Shields are of poor quality In his view, the anti-crisis shields will not re-start the markets: "The government's anti-crisis packages have proven to be an effective instrument for hibernating employment and stabilizing companies for the difficult period of falling demand in the coming quarters. However, anti-crisis shields and financial shields are not instruments of stimulating investment. (...) These are measures for survival, not for the expansion of companies. In such a situation one can see the need for further easing of the monetary policy in order to support investments". On top of that, inflation will fall: "We will rebound next year, but the scale of that rebound will be greater than the depth of this year's decline, which means a still negative demand gap. It will be reflected in inflation trends and should prompt further monetary easing. We assume average annual inflation in 2021 at 2.7 per cent, but it will be driven mainly by fuel prices - without the contribution of this category, inflation will be much lower. We forecast core inflation to be slightly above zero in H1 2021. This implies that the central bank can expect a deceleration in inflation trends in the coming quarters, which is a fundamental argument for monetary easing." Tags economy inflation interest rates