Polish central bank governor wrestles with rate setters for more cuts

By bne IntelliNews November 26, 2014

bne IntelliNews -

 

Polish deflation shows that there is room for further interest rate cuts, the governor of the National Bank of Poland (NBP) said in comments published on November 25. The claim comes as Marek Belka continues to try to reassert influence within the Monetary Policy Council (MPC).

Belka sought to increase the pressure for a more dovish policy in an interview with tabloid Fakt. The comments repeated calls for more easing made the previous day in an interview with Reuters in Vienna. 

In that November 24 discussion, Belka surprised by suggesting deflation is the primary focus within the MPC. That contradicts the last official MPC statement, which suggested that most members were now watching growth data.

In the Fakt interview, the NBP governor admits that the MPC he formally heads remains divided over the issue. Indeed, just a few days before Belka's renewed push, the MPC's Jan Winiecki insisted there is no room for further interest rate cuts.

Surprise, surprise

With low demand depressing inflation across Europe, Poland's CPI was a negative 0.6% in October, following price falls of 0.3% in the previous two months. The current run is the country's first deflation in 40 years.

Early this month, the MPC surprised as it kept the benchmark rate unchanged at a record low 2%. Most had expected a cut to follow the equally surprising reductions in October, when the MPC chopped 0.5pp from the key reference rate and 1.0pp off the upper ceiling lombard rate for retail loans.

Belka's guidance in October that he favoured "concentrated" cuts drove much of the expectation in November. A majority of analysts also continue to call for further action from the NBP to fight inflation and offer the economy stimulus, with the twin shadows of slowing Eurozone growth and the uncertainty surrounding Russia and Ukraine lengthening to threaten exports.

However, better-than-expected quarter three GDP growth has offered support to the hawks.  Unemployment falling to five-year lows, and rising retail sales, suggest an uplift for domestic demand, which is vital in the face of the external threats. A majority of rate setters subscribe to the theory therefore that deflation is driven by forces outside the control of monetary policy.

This time it's personal

Analysts say that the hawks will likely remain in the ascendancy for now, but there is rising concern that the notriously rambunctious MPC may be split not only by the economic outlook, but also personal grudges and other pressures.

The "Waitergate" tapes in the summer featured Belka not only apparently bargaining monetary policy for political influence with senior government officials, but also casting vicious personal barbs at MPC members. Unnamed sources told Bloomberg this month that one member of the rate setting committee "won’t even look at the governor".   

On top of that, many suggest the government now wants to see rates held for because of concerns over state debt levels to be reported at the end of the year. A rise in the value of the zloty - a trend Belka told Reuters he "fears" - would lower state debt levels because the majority is denominated in foreign currency.

Hungary, which held rates at 2.1% on November 25, is in the same boat. Many analysts suggest the NBP and NBH will be influenced as much by each others' monetary policy as economic conditions and the ultra-dovish stance of the European Central Bank.

"We do not expect the NBH and the NBP to cut rates before the end of this year at least," suggests KBC. "Apart from the ambiguous macroeconomic signals and central bankers’ rhetoric, there is one seasonal factor that may counteract such a move ... the annual reporting of public debt."

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Erste claims Hungary is breaking peace deal with banks

bne IntelliNews - Hungary will breach its February agreement with Erste Group if it makes the planned reduction in the bank tax conditional on increased lending, the Austrian lender's CEO ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss