Still relatively good situation on the labour market and limited scale of demand decline resulted in only slight drop of CPI inflation in Poland in 4Q20. During October-December it was on average 2.8% y/y against 3.0% y/y in 3Q. Inflation was fuelled mainly by growth of prices of services, which was sustained during the pandemic. This was happening because operating service providers were able to transfer costs of increased sanitary standards to consumers. In 4Q20 Monetary Policy Council did not modify interest rates and NBP continued (though on a low scale) the programme of repurchasing Treasury Bonds and securities guaranteed by the State Treasury. In December 2020 the National Bank of Poland intervened on the FX market and Monetary Policy Council emphasised the possibility of continuing this as well as the importance of a weak zloty exchange rate to support exports. In the Bank’s opinion the current parameters of monetary policy in Poland will be sustained in subsequent quarters as well as the possibility of NBP intervention on the FX market.
In the conditions of stable labour market, restrictions as well as self-isolation of consumers, household deposits in 4Q20 grew stronger than a quarter earlier, which reflects an increase of the rate of savings. On the other hand deposits of non-financial companies did not grow significantly, which in the Bank’s opinion may be associated with extinguishing of support under the PFR financial shield. In case of newly granted consumer loans for households, as well as loans for non-financial businesses, slight improvement was seen in 4Q20, although they fell vs. the same quarter of 2019. Meanwhile the value of new housing loans in 4Q20 was significantly higher than the year before, which was supported by the still good situation on the labour market as well as limited interest in other ways of preserving the value of money.
2021 should bring a significant improvement of business activity. Its scale will depend on the epidemic situation as well as pace of vaccinations against COVID-19. For this reason the expectations for 2021 involve increased uncertainty. The Bank’s baseline scenario assumes gradual receding of the pandemic from 2Q21. Start of the vaccination process gives hope for elimination of part of the uncertainty and avoidance of restoration of harsh restrictions, although reaching collective immunity, which offers a chance for return to normal, will take a few quarters. This means that some restrictions will stay in place also in 2021. Latest data however show that the Polish economy is becoming less and less susceptible to the adverse impact of further restrictions. The Bank’s expectations regarding improvement of the economic situation in 2021, with only slight decrease of demand for labour, are confirmed by an NBP survey of companies. Investment prospects still remain poor. Thus economic growth in Poland in 2021 will be supported according to the Bank expectations mainly by a rebound of consumer demand as well as export of consumer goods.
In 2021 Poland’s economy will be operating in an environment of almost zero NBP interest rates. According to the Bank fiscal policy will also remain very easy, with budgetary deficit still running high. The subsequent increase of public debt will be burden for public finances in the long run, however at present it is not causing tensions on financial markets due to the quantitative easing programme launched by NBP. Such economic policy in an environment of rebound of economic growth as well as increases of regulated prices will support a relatively high rate of inflation.