Interest rate market
Rate of return on Polish Treasury bonds dropped significantly in 2020 – by 99 b.p. to 0.05% for 2-year bonds and by 88 b.p. to 1.24% for 10-year bonds. The factors that had led to such decrease in returns were the anti-crisis actions of the central bank. The global increase in liquidity of the financial systems as a result of quantitative easing by key central banks throughout the world also had an impact on the drop in returns on bonds. On the other hand, the construction of the so-called bank tax contributed to the high demand for Treasury bonds on the part of domestic banks.
In 2020, the zloty weakened against the euro. The deterioration in the exchange rate of the Polish currency was a result of the global economic crisis, which caused an outflow of capital from emerging markets to safe havens. The reductions in the NBP interest rates had not contributed to the value of the PLN either. After accounting for inflation that exceeded 3%, the rates remained deeply negative in real terms. This discouraged foreign investors from maintaining short-term financial assets denominated in Polish zloty in their portfolios, thus reducing demand for them. At the end of the year, the zloty showed a tendency to appreciate driven by the global improvement of investor sentiments accompanied by better perspectives of the global and Polish economy. In effect, in December the NBP decided to intervene to weaken the zloty for the first time since 2010.
The main index on the Warsaw Stock Exchange – WIG – ended the year with a 1% drop. Its deep drop in the first quarter was fully compensated in the course of the year. After a period of panic selling, which led to a 36% drop in the index on 12 March compared with the beginning of the year, investors saw that the condition of the economy and companies traded on the Warsaw Stock Exchange (WSE) should gradually improve thanks to the decisive anti-crisis actions of the government and the central banks.
Stock exchanges were supported in particular by the monetary policy. Extremely low interest rates, negative if accounted for inflation, discouraged investors from keeping funds in bank accounts and bonds, causing savings to move to riskier assets, including stocks. Specific industry results were not affected to the same degree by the pandemic. The financial sector was more affected by those trends, which was reflected in the prices of the banks’ traded shares.