Andrzej Slawinski, head of the National Bank of Poland’s economics institute, said the zloty’s recent volatility hasn’t been large or disrupted the influence the exchange rate has on monetary policy. He also said the real exchange rate is stable.
He spoke in an interview yesterday in Warsaw.
On economic growth:
“Fixed capital investment is the riskiest kind of investment and companies will need more time to gain confidence in the strength and sustainability of the recovery. It’s too early to expect robust investment growth.
‘‘Nearly 80 percent of Polish exports are sold to the EU market, where economic growth is fragile. The only positive exception is Germany, whose appetite for our exports depends less on domestic demand and more on how much German companies sell on the global market. We need to wait until the growth pace in the EU accelerates.
‘‘Since Poland is undergoing the real convergence process, its potential growth pace is faster than in developed countries and it will continue this way for a long time. The pace could slow if investment stagnates for a prolonged period, but this doesn’t seem likely as the business cycle is on the upswing.
‘‘Investment growth will reappear sooner or later and that will support productivity growth, so there’s no reason to assume our growth potential will shrink in any drastic way.’’
On inflation risks:
‘‘When I was a member of the Monetary Policy Council, the main inflation drivers were food, energy and transport prices, which are poorly correlated with economic growth. At one stage we observed an increase in unit labor costs, but that’s not a risk now as we are still in the recovery stage of the cycle.
‘‘With output rising faster than employment, unit labor costs won’t pose an inflation risk for some time. Perhaps inflation pressure will emerge if global food and energy prices keep growing. If inflation accelerates, it will be driven by supply-side factors.’’
On the zloty:
‘‘Too much importance is given to nominal exchange rate moves, which are the result of an illiquid market. In terms of the real exchange rate, the zloty is stable. The volatility we’ve observed hasn’t been large and hasn’t disrupted the exchange-rate channel for monetary policy.
‘‘What policy makers fear is the zloty appreciating faster than its equilibrium rate. Countries undergoing real convergence show a tendency for their equilibrium exchange rates to strengthen. The turmoil in the euro area is pushing the zloty down temporarily, but the long-term trend supports currency stability.’’
On foreign-currency lending:
‘‘A more dangerous type of capital inflow to the currency and economic stability would be if domestic banks increased their borrowing on the global interbank market. Everybody’s focused on portfolio inflows, but the bigger problem is short- term foreign-currency borrowing by domestic banks. This is what could really trigger excessive zloty gains.
‘‘It would create a financing gap in the banking system and an unstable credit boom of the kind that was starting to gather momentum in 2007. Foreign borrowing also decreases the influence of the central bank on lending growth. For a stable expansion, the main thing is to curb foreign-currency lending.’’
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