Lombard Rate — What It Is and How It Affects Loans

What is the lombard rate?

The lombard rate is one of the main interest rates set by NBP (National Bank of Poland). It determines the interest rate at which NBP grants commercial banks lombard loans — loans secured by securities (most often treasury bonds).

How does a lombard loan work?

1. A commercial bank urgently needs cash (e.g., at the end of a settlement day)
2. It pledges securities to NBP as collateral
3. NBP grants an overnight loan (for 1 day) at the lombard rate
4. The next day the bank returns the loan with interest and receives the securities back

This is the "last resort" for banks — expensive, so they use it rarely.

Why is the lombard rate important?

Upper limit for market rates

The lombard rate sets a ceiling for interest rates in the interbank market. No bank will borrow from another bank at a higher rate than from NBP — because it can always go to NBP.

Maximum loan interest rates

The lombard rate affects maximum interest on consumer loans:

Maximum interest = 2 × lombard rate

This statutory limitation protects consumers from usury. If the lombard rate is 6.75%, maximum loan interest is 13.5%.

Late payment interest

Maximum late payment interest also depends on the lombard rate.

Lombard rate vs. other rates

The lombard rate is always higher than the reference (repo) rate. Typically by 1-1.5 percentage points. This creates an interest rate "corridor":

• Lower limit: deposit rate
• Middle: reference rate (repo)
• Upper limit: lombard rate

How Freenance can help

Freenance helps monitor how interest rate changes (including the lombard rate) affect your credit obligations and maximum loan interest rates.

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