The article analyses causes and consequences of changes in Poland's monetary policy in 2020-2021. It offers a detailed description of three major changes: the purchases of state-issued and guaranteed bonds on the secondary market starting in March/April 2020, the central bank’s interest rates cut on three occasions in spring, and foreign exchange interventions in December 2020. The primary objective of the bond purchases was to finance the expansion of government spending. These unexpected purchases raised the bonds’ market price while decreasing their yields, enabling NBP to tighten its control over interest rates. This coincided with a series of interest rate cuts, intensifying the central bank's real negative rates. A primary motive for NBP's foreign exchange interventions at the end of 2020 that weakened the zloty exchange rate was to maximize its profits from positive exchange differences. Poland's new monetary policy brought significant benefits to its government. Increased inflation has resulted from this, which spurs the question as to whether Poland’s monetary authorities are fulfilling their constitutional mandate. The Polish zloty has been losing its purchasing power relative to foreign currencies and domestically lately. The main problem with Poland's monetary policy is the overliquidity of the banking system, which negatively impacts NBP's ability to use its instruments. Poland’s monetary authorities have not been able to handle the over-liquidity for years. Increasing inflationary pressure has posed a new challenge to NBP. Resolving these dilemmas would require not only institutional changes, but also a reevaluation of monetary policy and its main purpose.
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