Poles are still hoarding cash

As bankier.pl notes, Poles continue to "arm themselves with cash." Apart from that, we keep less and less money in banks. In November, the [...] https://www.pinterest.com/pin/1085437947660215829/

As bankier.pl notes, Poles are still "arming themselves with cash. Apart from that, we keep less and less money in banks. In November, term deposits accounted for the least amount of savings in over 10 years. What do Poles do with their money? When the pandemic was just beginning in the spring, Poles withdrew their savings from accounts in large numbers. In March and April, this way banks withdrew over PLN 20 bln monthly, NBP data shows. After May, things started to calm down, but last month the amount of cash in circulation increased by PLN 5.5 bln, after a jump of PLN 7.9 bln in October. By the end of November, there was over PLN 304 billion in circulation, 35.7 percent more than a year earlier. In 2020 alone, there was an increase of PLN 80 billion in cash. In the background, the popularity of deposits is decreasing. This is the effect of the actions of the Monetary Policy Council, which reduced interest rates to almost zero. "Although there is no shortage of relatively favorable cases, most financial institutions offer almost 0 interest on time deposits. Therefore, it is no wonder that Poles are looking for more attractive ways to invest their savings. In November, households reduced their holdings of term deposits by PLN 6 billion. At the end of the month they kept less than PLN 194 billion on term deposits up to 2 years (almost all term deposits) - the least for over 10 years. Faced with poor interest rates on deposits, Poles are accumulating more and more funds on accounts. At the end of November, households held almost PLN 760 billion there, which was PLN 7.5 billion more than a month earlier. In total, household deposits reached PLN 953.5 billion, the highest level in history (since the time of denomination). This is 9.5% more than a year earlier. CPI inflation amounted to 3 percent in that period. - According to GUS data. - notes bankier.pl. It is all fear - The increased demand for cash is partly an effect of fear - people are less likely to leave their homes for fear of a virus and want to have liquidity reserves. The effect of falling interest rates is also very important. In Poland, interest rates have fallen to zero, which makes the alternative cost of holding cash very low. In other countries interest rates are either minimally higher (e.g. Czech PRIBOR and Hungarian BUBOR are higher than Polish WIBOR) or relatively they have not fallen that much. It is also possible that the shadow economy is growing faster in Poland, according to Ignacy Morawski, chief economist of "Puls Biznesu" daily, in the pages of Bankier. Does this mean inflation risk? - A large amount of money may lead to temporarily increased inflation, if people start to realize on a large scale the demand postponed from the epidemic period. This will be the inevitable cost of the crisis. But for this to translate into a sustained and very high rise in prices, there would still need to be a complete loss of confidence in the currency and the ability of the central bank to defend its value. Of course, I can imagine that, but I don't think the risk is high at the moment - adds the economist. Tags NBP Poles MPC