1. 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

2. 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

3. ECB expanded asset purchase programme
announced on 22 January 2015, started in March 2015
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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

4. 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
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5. 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%
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Other underlying factors:
fiscal loosening expected under new administration
more interest rate increases expected in the future

6. 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)
deflation persisting since mid-2014 has finally changed into inflation from November 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 (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.

7. 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).