Interest rate policy of central banks worldwide during the SARS-CoV-2 pandemic

Abstract

Contemporary central banks operate within a turbulent environment. In shaping monetary policy and achieving its objectives, these entities bear the responsibility of maintaining stable prices and safeguarding the value of the national currency, all while fostering socio-economic development. To fulfill these aims, central banks deploy a diverse array of instruments, with particular emphasis on the principal role played by interest rates. This present paper is both theoretical and empirical in nature. It seeks to elucidate the essence and significance of monetary policy in modern states. It aims to highlight the role of interest rates in achieving monetary policy objectives and examine how central banks worldwide adjusted their interest rate policies in response to the challenges posed by the COVID-19 pandemic. The theoretical part of the paper relies on a literature review methodology, while the empirical part draws upon the author's own analyses of central banks' interest rate levels during various months of the pandemic. The data for this analysis were sourced from the websites of Narodowy Bank Polski (the National Bank of Poland) and the Bank for International Settlements. The findings of the study indicate that, during the initial phase of the pandemic, central banks predominantly pursued an expansive monetary policy. However, as time progressed, monetary policies shifted towards a more restrictive style, driven by the dynamically increasing inflation.