Dr Marek Porzycki Chair for Economic Policy Monetary Law and Monetary Policy 12a. Current developments in central banking and monetary policy 2016/17 Dr Marek Porzycki Chair for Economic Policy

Issues covered Euro area quantitative easing – ECB expanded asset purchase programme extended in December 2016 Fed monetary policy decisions – a consistent path towards interest rate hikes? Poland – return of inflation, weakened currency, uncertainty related to institutions and rule of law

ECB expanded asset purchase programme announced on 22 January 2015, started in March 2015 http://www.ecb.europa.eu/press/pressconf/2015/html/is1501 22.en.html coverage: bonds issued by euro area central governments, agencies and European institutions, later also extended to private sector bonds amount: 60 bn EUR monthly, later increased to 80 bn EUR Initially planned until at least September 2016, later extended Decisions taken on 8 December 2016: extension of the programme until at least the end of 2017 reduction of the amount of purchases back to 60 bn EUR monthly from April 2017 Background: low inflation environment expected to persist; very fragile economic recovery marred by uncertain international situation

ECB interest rates deposit rate has been last changed in March 2016 when it was lowered from -0,30% at -0.40% (further move into negative territory) On 8 December 2016 ECB interest rates have been left unchanged: deposit rate at -0.40% interest rate on the main refinancing operations at 0.00% interest rate on the marginal lending facility 0.25% Statement in the press release: „The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time https://www.ecb.europa.eu/press/pr/date/2016/html/pr1 61208.en.html

Fed monetary policy decisions of 14 December 2016 underlying factors according to official statement: moderate expansion of economic activity the labor market continues to strengthen Increase in inflation but below long-term objective of 2%, expected to rise over the objective in medium term the target rate for the federal funds rate (corresponds to the deposit rate) raised from 0,25-0,5% to 0,5-0,75% discount rate (corresponds to the refinancing rate) stays at 1,25% https://www.federalreserve.gov/newsevents/press/monetary /20161214a.htm Other underlying factors: fiscal loosening expected under new administration more interest rate increases expected in the future

Monetary policy and central banking in Poland 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) http://www.nbp.pl/en/aktualnosci/2016/mpc_2016_12_07.pdf deflation persisting since mid-2014 has finally changed into inflation from November 2016. Further inflation rise is expected but probably still below the NBP target of 1,5%-3,5% New appointments as Governor of the NBP and almost all members of the Monetary Policy Council in the first half of 2016 (with no legal and political controversies – orderly appointment after the expiry of the terms of previous office holders) New appointments are considered „doves” – no interest rate hikes expected in near future.

General economic environment in Poland Institutional and legal uncertainty caused by the constitutional crisis Economic slowdown caused by less investment; consumption still strong probably in result of increased social spending by the government Rating cuts for Poland’s sovereign debt in early 2016 contributed to the weakening of PLN; further weakening of the PLN vs. USD resulted from international situation after the U.S. presidential election (corresponds to the weakening of the EUR vs the USD).