Belka Faces First Polish Rate Meeting Since Tapes Scandal

Polish central bank Governor Marek Belka is facing his fellow policy makers at the first rate meeting since a scandal over leaked conversations, which he vowed to keep from affecting monetary policy.

The Monetary Policy Council will begin its two-day meeting on interest rates today, with Jerzy Hausner due to address the panel about the scandal that erupted June 14, when the Wprost magazine began publishing conversations of top officials. Belka was heard making crude jibes about Hausner and discussing potential central bank help for the government before next year’s elections.

The crisis coincided with a debate among policy makers over whether to abandon their pledge to keep interest rates unchanged through September after the threat of deflation in the summer months emerged. Forward-rate agreements show traders anticipate a 25 basis-point reduction over the next three months, data compiled by Bloomberg show.

“There’re plenty of question marks hanging over this meeting,” Piotr Bielski, an economist at Bank Zachodni WBK SA, said by phone from Warsaw yesterday. “Policy makers have signaled that their forward guidance will change and they need to replace it with something else or they risk wrong-footing the market. Then who knows what Hausner will say and how that will affect their discussions?”

The central bank will leave the benchmark rate at a record-low 2.5 percent when the meeting ends tomorrow, according to all 31 economists surveyed by Bloomberg. Even so, Elzbieta Chojna-Duch, one of the policy makers, said June 26 that she may file a motion to lower the rate, which has remained unchanged since last July even as inflation matched an record low of 0.2 percent in May.

‘Our Business’

While growth in the European Union’s largest eastern economy accelerated to 3.4 percent in the first quarter, the fastest in two years, the rate may have fallen below that rate in the April-June period, Finance Minister Mateusz Szczurek told reporters in Warsaw yesterday.

“We shouldn’t be concerned about low inflation as long as growth is decent and the budget is doing well, which is the case right now,” Belka said yesterday at an awards ceremony in Warsaw.

Asked what he’s going to tell Hausner at today’s meeting, Belka told reporters: “That’s our business.”

Gain Flexibility

Policy makers will today receive fresh staff projections for inflation and growth in 2014-2016. The document may show the consumer-price index below zero in the third quarter before its steady rise to 2.5 percent, the central bank’s target, in late 2015, according to Michal Dybula, an economist at BNP Paribas SA in Warsaw.

“The MPC will abandon its forward guidance to gain some policy-making flexibility in the face of very low inflation,” Rafal Benecki, an economist at ING Groep NV in Warsaw, said in an e-mail yesterday. “A motion to reduce rates won’t get the required majority this month, but there is a chance it will pass in September.”

Even with a benign inflation outlook generating momentum for a cut, potential easing may be derailed if the council wants to avoid the impression that it’s helping the government following the tape scandal, according to Grzegorz Maliszewski, chief economist at Bank Millennium SA.

Taped Comments

In the recordings, Belka can be heard asking for the dismissal of the finance minister as a condition for the central bank to implement policies that would help the government foster economic growth before elections scheduled for 2015.

He suggests the MPC, which sets interest rates, would be a hindrance. Belka goes on to discuss how Hausner, who had been the key swing voter for council decisions, liked his “pivotal” status and would go along with it because “he bestows gravitas and thinks he’s well hung.”

The central bank is by law required to stay out of politics.

Hausner and Adam Glapinski, another of the 10 policy makers on the council, didn’t attend the first working meeting after the scandal broke last month. Those who were present praised working with Belka in a June 17 statement, although Andrzej Rzonca, another central banker, later said it didn’t constitute support for the governor and called on him to consider stepping down.

Belka, a former premier and finance minister, said in June 24 interview he’ll “stay the course” on policy and while the scandal hurt his credibility he wasn’t planning to quit.

“It’s going to be tense,” Millenium’s Maliszewski said by phone from Warsaw yesterday. “Policy makers will probably vent their outrage, but also try to put a brave face on the whole scandal in their communication with an outside world.”

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