Interest rate and corporate loans in the context of inflation
Central bank interest rates as an instrument of monetary policy have had a very limited influence on the credit activity of the commercial banking sector in the last five years in Poland. The National Bank of Poland has not been able to shape credit volume and domestic activity applying the basic tools of monetary policy. This phenomenon has been the result of a classic crowding out effect stemming from the oversupply of money market bills in domestic financial markets. The purchase of central bank short-term debt paper was an alternative form of assets allocation for banks limiting the supply of credits for the non-financial sector. The demand for credit is shaped by other factors other than the price of money. The size of the lending activity does not depend on the price of credit alone. The demand is shaped by other factors also. The economic agents expectations regarding the future business climate and the size of own funds are of crucial importance. The financial situation of Polish enterprises looked profitable in the post crises period. The high inflation of producer`s prices in Poland created additional incomes and new sources of financing growth. Currently, enterprises assess the probability of a surge in global demand, sales and profits rather pessimistically. For this reason they have abstained from new investment projects The firms that did engage in new investment projects prefer to finance them with their own funds. In their cases the price of credit was of secondary importance. Simultaneously, the supply of loans to enterprises by banks also decreased owing to persistent risk aversion. The banks reluctance to extend loans was evident not so much as the higher interest rates offered as in the tightened lending conditions. The main prerequisite for strengthening the interest rate transmission channel of monetary policy is limiting the supply of money market bills as an attractive asset for commercial banks for investment.
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