There is ongoing action to save entire economies by unprecedented moves by central banks and governments. The National Bank of Poland has also switched to non-standard activities and declared to purchase treasury bonds on the secondary market to increase financial liquidity. New Zealand, Australia and Great Britain are also taking further actions.
The statement of the National Bank of Poland published on March 16 contained the following entry: "We will also implement large-scale purchase of treasury bonds on the secondary market as part of structural open market operations, which will change the long-term liquidity structure in the banking sector. The effect of these operations should also be maintaining the liquidity of the secondary government bond market. We will introduce a promissory note loan for banks, which – like the TLTRO program introduced by the ECB – will allow refinancing loans granted by banks to non-financial sector enterprises. " This is an unprecedented activity, but under current circumstances necessary for the proper functioning of the market. Moreover, the NBP management board recommends that the Monetary Policy Council cut interest rates, which may take place on March 17 during a one-day MPC meeting. The Council may lower the main interest rate by up to 50 basis points from 1.5%. up to 1.00 percent
The zloty already seems to react to the loosening of monetary policy in Poland. The EUR/PLN exchange rate rose to around 4.48, i.e. the highest level since December 2016. Meanwhile, the dollar strengthened above 4 PLN, to 4.03, which is the highest level since March 2017. Looking at historical volatility, especially EUR/PLN pair, the scale of the zloty weakening seems to be very large, but also the activities of the NBP are above average.
The New Zealand dollar slightly strengthened against the US dollar after information about the introduction of a government stimulus package for the economy. The New Zealand Minister of Finance has implemented a package worth 4 percent of GDP equal NZD 12.1 billion. Almost half of this amount will be allocated to supporting enterprises and salaries for employees in every sector and in every UN region.
Pressure is increasing on the UK government, where the British FTSE 100 index (UK100 on the Conotoxia platform) closed on Monday, March 16, at its lowest level in eight years. Public opinion and markets expect the Treasury Chancellor to announce today, March 17, a support package for companies affected by the epidemic to protect jobs. The British pound seems to be continuing a downward trend of several days, and is the weakest against the dollar since October 2019.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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