Secret Tapes Cast Doubt on Polish Central Banker’s Future

Investors spent the past month trying to divine if Marek Belka would cut Poland’s record-low interest rates. That debate seems mundane after a leaked tape pushed the central bank governor’s career to the brink.

The zloty weakened 0.6 percent to a 12-day low of 4.1427 against the euro at 8:37 a.m. in Warsaw as markets opened for the week. Yesterday, Belka said he “regrets” language he used during a secretly-taped 2013 conversation with Interior Minister Bartlomiej Sienkiewicz, published by the Wprost magazine two days ago, which sparked calls for Prime Minister Donald Tusk to quit.

Belka said in a statement yesterday that he never broke the law and that the recording was “manipulated” to suggest “an instance of the central bank governor exceeding his powers, which never took place.” Tusk is scheduled to hold a news conference on the “unpleasant case” at 3 p.m. in Warsaw, he said on Twitter.

“If true, this is damaging to Belka and undermines the independence of the central bank,” Tim Ash, chief emerging-market economist at Standard Bank (SBK) Group Ltd. in London, said by e-mail yesterday. “The question would be whether this makes Belka’s position untenable?”

On the leaked tape, which Wprost said was recorded in July 2013, Sienkiewicz is heard asking Belka if the central bank would be able to help the government support the economy before next year’s election if weak growth and budget inflows coincide with a surge in support for opposition Law and Justice party.

‘Grim Reading’

Belka is heard replying that he would be ready to “play ball” with the rate-setting Monetary Policy Council if Finance Minister Jacek Rostowski is replaced by a “technical and apolitical” figure.

Tusk picked Mateusz Szczurek, an economist at ING Groep NV (INGA) with no political experience, to replace Rostowski in November.

“It makes for quite a grim reading, but the idea that monetary policy is anything other than price stability is very negative in the medium-term and there will have to be some accounting for this,” Paul McNamara, investment director at GAM U.K. Ltd., which manages $129 billion in assets, said by phone from London yesterday. “In terms of immediate impact on the market, I’d guess it’s going to be negative for the zloty but not in a major or sustained way.”

The yield on Poland’s local-currency notes due in July 2016 stood at 2.52 percent on June 13, within two basis points of a record low. The rate has declined from as much as 3.25 percent on Jan. 31, data compiled by Bloomberg show.

Council Relations

On the tape, Belka also hurls insults at the 10-member Monetary Policy Council, especially at Jerzy Hausner, which threatens “irrevocably damage his relationship” with the panel that sets interest rates and has some oversight over central bank accounts, according to Michal Dybula, chief economist for central and eastern Europe at BNP Paribas SA. (BNP)

“This doesn’t look good for the central bank governor,” Dybula said by phone from Warsaw yesterday. “In the worst case, this may end badly for Belka, because we are talking about an independent central bank governor lending his support to one side of the political divide. This might be the basis for putting him in front of the State Tribunal.”

Belka will be asked for explanations at the next council meeting on June 17, policy maker Elzbieta Chojna-Duch said in a phone interview yesterday.

Bond Buying

The transcript on Wprost’s website shows Belka allegedly discussing options for the central bank to buy government bonds in an emergency situation by providing liquidity to state-owned lender BGK and state-controlled PKO Bank Polski SA.

“I simply must have instruments, for example, to get around the Monetary Policy Council,” said Belka, according to Wprost. It would be best not to resort bond buying by the central bank because of the “huge” difficulty in returning to normal debt sales afterwards, he was cited as saying.

The government’s agenda shows the cabinet will discuss amendments to the central bank law, including allowing the central bank to buy bonds on the secondary market outside of open-market operations, at its June 17 meeting.

The tapes show a “blatant violation” of central bank’s autonomy, former Finance Minister and central bank Governor Leszek Balcerowicz said on Radio Tok FM today.

‘Serious Crisis’

Polish President Bronislaw Komorowski, who appointed Belka for a six-year term in June 2010, believes the leaked recordings show a “serious crisis of state institutions,” Gazeta Wyborcza said on its website yesterday, citing Joanna Trzaska-Wieczorek, his spokeswoman. The president is awaiting explanations from Tusk and Belka, she told Gazeta.

Belka will ask for the president’s assessment of the situation before deciding whether he should resign, Gazeta reported, without saying where it got the information. Przemyslaw Kuk, a spokesman for the central bank, didn’t reply to calls seeking comment.

The crisis at the central bank comes as policy makers are weighing whether to resume interest-rate cuts after inflation slowed to 0.2 percent in May, matching a record low. While Belka said June 3 that he “wouldn’t exclude” easing, other policy makers, including Jan Winiecki and Andrzej Kazmierczak, say it’s not needed after the economy expanded at its fastest pace since 2012 in the first quarter.

Rate Effect

Forward-rate agreements, contracts used to bet on interest rates, showed a quarter-point reduction in the central bank’s 2.5 percent reference rate within three months, data compiled by Bloomberg on June 13 show. JPMorgan Chase & Co. (JPM) forecast a 50 basis-point reduction in the benchmark rate, “most likely” in September, according to a note by Nora Szentivanyi, an economist for central and eastern Europe, published the same day.

The scandal may also sway the deliberations of policy makers, according to Krzysztof Izdebski, a fixed-income money manager at mutual fund Union Investment TFI in Warsaw.

“Potential rate cuts are now less probable, as they may be interpreted as giving a helping hand to the government,” Izdebski, whose company has $2.8 billion in assets, said by phone yesterday.

To contact the reporters on this story: Piotr Skolimowski in Warsaw at; Marek Strzelecki in Warsaw at

To contact the editors responsible for this story: Wojciech Moskwa at; Balazs Penz at David McQuaid

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