Storm threatens to topple Polish central bank governor

By bne IntelliNews June 16, 2014

Tim Gosling in Prague -


The governor of the National Bank of Poland is facing a fight to keep his job following the June 13 release of tapes allegedly featuring him demanding the sacking of the finance minister in return for a pledge to support the government. The ruling Civic Platform (PO) is also under pressure over the affair.

The Polish central bank insisted on June 14 that the audio recording of Marek Belka in a Warsaw restaurant discussing the issue with Interior Minister Bartlomiej Sienkiewicz was "manipulated". While claiming the recording, made in July 2013 and released by weekly Wprost, was taken out of context and that he was not exceeding his powers, Belka said in a statement that he regreted the language he used about colleagues at the meeting. 

Sienkiewicz is also heard making crude statements - including that "the Polish state only exists in theory; in practice it doesn't exist". A spokesperson for Polish President Bronislaw Komorowski, who appointed the hawkish Belka for a six-year term in June 2010, said he believes the leaked recordings show a "serious crisis of state institutions," according to Bloomberg.

The provenance of the tape has not been published by Wprost, but it's clearly another boon for the opposition Law and Justice (PiS), which has been hunting down PO in the polls. The conservative and populist PiS has predictably called on the government to resign. Prime Minister Donald Tusk has said he will make a statement in the afternoon of June 16.

However, it's Belka - much trusted by the markets - who appears in the most immediate danger. On the tape, the governor blasts insults at members of the monetary policy council (MPC), as well as apparently demanding a say in top appointments in return for bailing out the government. 

Asked by Sienkiewicz on the tape if the NBP would back the government via an interest rate cut in the event of an economic meltdown and imminent election defeat, Belka answers, according to Reuters: "My condition would be the removal of the finance minister." The respected Jacek Rostowski was replaced by political rookie Mateusz Szczurek in November - a move many suggested would put the post under the direct control of the PM.

Aside from the pressure from the opposition and the president, the NBP head now faces anger from his colleagues on the MPC, which is often rent by differences of opinion on policy. Analysts at Commerzbank say the scandal "has put the stability of the entire MPC in question," noting "members now want to question Belka at a non-rate meeting," on June 17. "It is difficult to envisage Belka continuing as normal as NBP chief after this," they conclude. 

Tim Ash at Standard Bank is equally wary over Belka's chances of survival. "It is touch and go whether… Belka will be able to survive," he writes, "albeit his boots will be quite difficult to fill." 

He then suggests that the central bank chief's strong stewardship of the economy may mean that the markets will remain relatively stable, despite the drama. "I think Poland's fundamentals are now strong enough to enable the economy to ride out the current crisis, and change at the NBP. Arguably Belka has done such a job, that he may well now be dispensable from a market perspective."

Adding more irony, some suggest the scandal surrounding the hawkish Belka could now actually derail potential monetary easing. The NBP chief suggested recently that the central bank could dive further below the record low 2.5% benchmark interest rate it currently sits on as inflation continues to sag. However, one analyst from Union Investment TFI in Warsaw suggested to Bloomberg there is now less likelihood, as a rate cut could be interpreted as the NBP helping the government.

Commerzbank appears to dismiss such a scenario, saying the mess "need not interfere" with the NBP's next rate cut. "We now expect the policy rate to be cut to 2%, beginning probably in July," they write. "It is possible, however, that the first cut will be delayed until September, because [the] NBP is trying to operate under a 'forward guidance' framework and its guidance is still for flat rates through [quarter three]."

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