Belka Says Polish Easing Would Unsettle Zloty, Spur Speculation

Further easing of Poland’s monetary policy this year would harm its currency, increase speculation on its debt and bring few benefits to companies and consumers, central bank Governor Marek Belka said.

Analysts’ expectations of further rate cuts from the record-low 2.5 percent, as suggested by one newspaper survey showing the benchmark rate at 2.29 percent in December, are “deeply mistaken,” Belka said today in a speech to parliament in Warsaw. More monetary easing wouldn’t necessarily stimulate an economy where debt levels are much lower than in western Europe, he said.

The European Union’s biggest eastern economy has reduced borrowing costs by 2.25 percentage points since November to fight the worst growth slowdown since the 1990s, while the zloty last quarter endured its biggest loss in almost two years. Better-than-expected June retail sales published yesterday and industrial-output data last week add to evidence that Poland is emerging from the downturn, though progress will be “slow,” Belka was quoted today as saying in Rzeczpospolita newspaper.

“We look at the level of real interest rates as a certain gauge of normalcy in monetary policy,” Belka said in his speech to lawmakers. If the central bank were to cut rates as steeply as possible to provide a stimulus, “we know we’d be destabilizing the zloty and thus the economy, which is what we’re trying to avoid.”

Zloty Weakens

The zloty declined 0.5 percent to 4.2223 at 4 p.m. in Warsaw after having gained in nine previous sessions, its longest winning streak since April 2008. The Polish currency has weakened 3.3 percent this year, making it the 10th-best performer among 24 emerging-market currencies tracked by Bloomberg. The yield on Poland’s five-year bonds rose 6 basis points, or 0.07 percentage point, to 3.36 percent.

Rate cuts, if “overdone,” could destabilize the zloty, discourage savings and thus limit commercial banks’ ability to lend, while reducing the rate disparity that attracts buyers to Polish government bonds, Belka said. Concluding rate cuts at 2.5 percent was “the result of a certain compromise” among the Monetary Policy Council’s 10 members, he added.

“We wanted to send a clear message to investors that domestic interest rates would stay at their current level for a long time, until the end of the year,” Belka said in his speech. “Anybody who wanted to speculate on Polish debt should have lost interest.”

Broke Deadlock

Belka’s vote broke a 5-5 deadlock on the Monetary Policy Council in favor of a quarter-point rate cut in June, according to tallies published today on the central bank’s website. Belka was joined by policy makers Andrzej Bratkowski, Elzbieta Chojna-Duch, Jerzy Hausner and Anna Zielinska-Glebocka. He voted against a motion to cut rates by 50 basis points in June, which won support from only two of the panel’s 10 members.

The Narodowy Bank Polski should keep interest rates stable and stick to a conventional monetary policy, waiting and watching economic conditions, Chojna-Duch was reported as saying today in an interview on Polish Radio’s Third Channel.

Poland’s “accommodative monetary-policy stance is appropriate in a context of muted inflationary pressures and narrow fiscal space,” the International Monetary Fund said yesterday in the summary of an Executive Board discussion on July 17. Some directors advised taking “a cautious approach,” given risks associated with a low-rate environment, it added.

Polish economic growth may slow to 1.1 percent this year before recovering to 2.25 percent in 2014 and 2.5 percent in 2015, according to IMF staff projections. The general government budget deficit will probably widen to 4 percent of gross domestic product this year before narrowing to 3.3 percent in 2014 and 2.9 percent in 2015, according to the IMF.

To contact the reporters on this story: Ott Ummelas in Tallinn at

Maciej Onoszko in Warsaw at

To contact the editor responsible for this story: Balazs Penz at

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