Poland should provide fiscal stimulus to aid the virus-hit economy before the central bank considers cutting borrowing costs that are already at a record low, Monetary Policy Council member Grazyna Ancyparowicz said.
“It’s high time for fiscal policy to play first fiddle,” Ancyparowicz said in an interview. “Our monetary policy has already been near its limit and absolutely nothing should be done by us without the government taking fiscal action first.”
Poland’s government, facing budget spending limits after ramping up welfare payouts in past years, has so far refrained from announcing any large-scale stimulus to help counteract the fallout from the coronavirus.
Her comments come after Governor Adam Glapinski said that he’s ditching his long-held stable-rates outlook and that he’ll propose a rate cut to the 10-member MPC he chairs. Ancyparowicz didn’t rule out supporting an easing motion in certain circumstances.
“I won’t vote for any rate cut unless I see a new central bank projection showing a severe slowdown” to 2%-2.5% this year, she said. Still, “a rate cut without fiscal moves may be an experiment that leads us nowhere.”
Based on comments by MPC members in the wake of Glapinski’s bombshell, his rate cut motion may be passed. He needs support from only four other panelists because as governor, he casts the tie-breaking vote.
The Council left its benchmark rate at 1.5% at its last meeting on March 4. It’s not clear whether the panel will hold its regular monthly non-policy meeting on Tuesday because the central bank has restricted access due to concerns over the spread of the coronavirus. It’s next regular policy gathering is slated for April 7-8.
With annual inflation at an eight-year high of 4.7%, Poland has one of the world’s lowest real interest rates at minus 3.2 percentage points. The real cost of money has stayed below zero for most of the past three years without having a marked affect on investment, with consumption and exports fueling economic expansion.
The central bank published its three-times-per-year economic projections in March, which envisage gross domestic product expanding by at least 3% annually through 2022. But the government has just shut shopping centers and tightened border controls to counter the virus, risking growth.
“The latest decisions to combat the virus will badly hit domestic businesses, and monetary policy can’t be seen as the only, or the main remedy,” Ancyparowicz said. “We definitely need updated calculations to decide whether our policy should be adjusted. Yet, I hardly see any chance that a cut would help.”