THE INFLUENCE OF THE INSTRUMENTS OF MONETARY POLICY OF THE NATIONAL BANK OF POLAND ON THE LEVEL AND VARIABILITY OF SHORT-TERM RATES OF INTEREST

Abstract

The National Bank of Poland influences on interbank market throughout three instruments: reserve requirements, standing facilities and open market operations. This article describes the impact of these tools on short-term interest rates on the interbank market. Nowadays limiting volatility of short-term interest rates on the interbank market is the most important function of reserve requirements. They help to stabilise the overnight rate because the requirements are lagged and averaged. Standing facilities are safety valves for banking system. Banks can use credit facility when they urgently need liquidity or deposit facility when they have surpluses. Simultaneously, standing facilities indicate corridor of market rates volatility. These standing facilities’ features allow them to limit overnight rate volatility – as well as reserve requirements do. Open market operations are the principal instrument for maintaining short-term interest rates at a level consistent with established inflation target being implemented. Minimal interest rate for main operation - issuing 7-day NBP money bills - is announced by the Monetary Policy Council. One-week interest rate on the interbank market fluctuates around this official interest rate.