Dr Marek PorzyckiChair for Economic Policy

Euro area quantitative easing – ECB announcement of an expanded asset purchase programme, 22 January 2015

http://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html

Decision of the Swiss National Bank to drop minimum exchange rate, 15 January 2015

http://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf

coverage: bonds issued by euro area central governments, agencies and European institutions

amount: 60 bn EUR monthly duration: „until at least September 2016 and in any

case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term”.

„Aimed at fulfilling the ECB’s price stability mandate, … to address the risks of a too prolonged period of low inflation.”

„situation in which most indicators of actual and expected inflation in the euro area had drifted towards their historical lows”

potential second-round effects on wage and price-setting ( result of expectations)

„forceful monetary policy response” needed context: key ECB interest rates are already at

their lower bound ( „pushing on a string”)

making access to finance cheaper for firms and households supporting investment and consumption, and ultimately contributing to a return of inflation rates towards 2%

purchase of bonds against central bank money, „which the institutions that sold the securities can use to buy other assets and extend credit to the real economy. In both cases, this contributes to an easing of financial conditions.”

controversial issue resulting from:- complex structure of the Eurosystem- varying creditworthiness of EU governments differences

in credit quality of bonds coordination of purchases by the ECB ( control over

money supply) decentralised implementation by the Eurosystem central

banks (NCBs) loss-sharing between NCBs on bonds issued by EU

institutions (12% of purchases) and on direct purchases by the ECB (8%)

no loss-sharing on the remaining 80% - purchases by NCBs NCBs alone will bear the credit risk of the respective sovereign bond issuer

credit quality criteria applicable in principle

Swiss franc (CHF) perceived as „safe haven” by investors – upward pressure on exchange rate

harm to Swiss economy resulting from overvalued currency – loss of competitiveness

from September 2011 SNB applied a cap on CHF appreciation – a minimum exchange rate of 1,20 CHF per 1 EUR

maintaining the cap meant a commitment to buy foreign currency in unlimited quantities, creating money in CHF in exchange

loss of control over the expansion of the monetary base risk of inflation in the long term

a cap combined with appreciation pressure from the market resulted in conditions similar to ( „impossible trinity”) – SNB was unable to maintain an independent monetary policy

uncontrolled expansion of SNB currency reserves combined with inability to sell them

abandonment of the exchange rate cap, introduction of floating exchange rate

result: CHF has suddenly appreciated to below 0,90 CHF per EUR and subsequently traded at ca. 1 CHF to 1 EUR

sudden currency appreciation and abandonment of the commitment to unlimited creation of CHF had similar effect to a tightening of monetary policy

in order to reduce adverse effects of currency appreciation SNB deposit rate was moved further into negative territory to -0,75%

short term results – loss of competitiveness of Swiss exporters drop in shares of Swiss companies

hit to the Swiss tourism industry long term results - ? indirect results – worsening of the situation of borrowers in

CHF in Poland and other countries of the region

- risk of adverse effects for Polish banking sector resulting from lower recovery rates