Belka Says Fund Exodus Might Overcome Polish Firepower on Zloty
While Poland has the “firepower” to act on currency markets, it may have to live with a weaker zloty if investors continue to pull out of emerging markets, central bank Governor Marek Belka was quoted today as saying on the Narodowy Bank Polski’s Obserwatorfinansowy.pl website.
Belka’s comments published in the article are below.
On the zloty:
“We’re seeing not just hedge funds, but long-term investors, withdrawing from emerging markets, including Poland. We’re monitoring the situation because if this process continues, we’ll have to accept further zloty depreciation.”
On central bank intervention:
“In a matter of days the zloty fell from 4.40 against the euro to 4.53. In normal times we’d be calling this a currency crash. Our three interventions were designed to show that we’re not acting randomly and that we have the firepower to use.
‘‘We’re not going to defend any specified exchange rate. If the trend is going to be that certain types of capital are being withdrawn from emerging markets, including ours, than there’s not much we’ll be able to do. The only thing we can accomplish is to ensure that the process is orderly and that speculation doesn’t get too feverish.”
On foreign financing of Polish banks:
“About 14 percent of domestic lending is financed via credit lines from parent banks or is obtained on the European interbank market. This financing isn’t stable. If we’re concerned about increasing domestic lending, Poles should save more. We have a low domestic savings rate. One can say that Poles save about 10 percent of their income.
‘‘I wouldn’t accept an expansion of domestic credit funded from outside the Polish banking system. I’d prefer less access to credit than dependency on foreign financing and an increasingly unstable currency.”
On the economy:
“Poland has a chance to buck a global downturn as it did in 2009 if there isn’t a drastic deterioration in local business sentiment. We won’t avoid a dip in growth, but it doesn’t have to be as deep as those in neighboring markets. Besides, if the market consensus is pointing to gross domestic product growth of more than 3 percent this year, this is no tragedy, although after the results in 2010 and 2011, it would be hard to call it good news.”
On “super-ambitious” government budget plans:
“This will involve a fiscal tightening of about 5 percentage points of GDP over two years. If it succeeds, one could call Poland the budget-cut leader. But there’s the question of whether curbing the deficit on this scale is possible during a slowdown. True, the budget situation this year is comfortable, but that’s mainly due to one-time factors such as a reduction of transfers to privately managed pension funds.
‘‘One also has to keep in mind so-called market perceptions. If this year’s budget deficit were close to 8 percent of GDP instead of 5.5 percent, the economy would be expanding at a 6 percent rate. But the consequences for the current-account deficit and the zloty would be terrible. If Poland turned out to have a problem with its budget deficit or its external deficit, the market’s negative reaction could be blown out of all proportion.”
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