East Europe Easing Demands Spread as Poland Trims RatesAgnes Lovasz
Politicians across eastern Europe including Poland, where interest rates fell to the lowest in almost two years today, are following the lead of other emerging-market governments by demanding looser monetary policy.
Poland, whose Finance Minister Jacek Rostowski blames high borrowing costs for his nation’s slowdown, lowered the main rate a quarter-point to 3.75 percent. Czech policy makers left their benchmark at a record-low 0.05 percent, almost three quarters of a point less than the euro area’s. In Russia, where the central bank meets Feb. 12, President Vladimir Putin has joined ministers in pressing for monetary stimulus.
The slowest economic growth since 2009 has prompted eastern European governments to step up calls for lower borrowing costs. Similar tactics have been used by Japanese Prime Minister Shinzo Abe, who’s pushing the Bank of Japan to end two decades of deflation, and Turkish Economy Minister Zafer Caglayan, who’s called policy makers “cowardly” when it comes to rates.
“Politicians are applying more pressure on the central banks to help in their efforts to get growth going at any cost,” Nick Chamie, global head of currency strategy and emerging-markets research at RBC Capital Markets, said Jan. 29 by phone from Toronto. “They can complain about the central bank not doing enough to deflect some of the criticism thrown their way for lackluster growth.”
The ruble and zloty are the fourth- and fifth-best performers over the last three months among 25 emerging-market currencies tracked by Bloomberg, gaining 4.5 percent and 4.2 percent against the dollar. The ruble fell 0.4 percent to 30.076 per dollar today, while the zloty lost 0.5 percent to 3.088.
Central banks around the world are coming under pressure. Japan’s Abe has sought looser policy and a weaker yen, with BOJ Governor Masaaki Shirakawa saying yesterday he’d step down three weeks early. Brazilian President Dilma Rousseff said in December that the central bank should lower interest rates, while Columbian President Juan Manuel Santos has also urged more cuts.
Hungary was the first eastern European nation to demonstrate the trend. While it watered down a bill the European Union deemed harmful to central bank independence, four rate setters picked by Premier Viktor Orban’s governing party have voted for six rate cuts since August, overruling bank President Andras Simor and his two deputies. Orban may now name Economy Minister Gyorgy Matolcsy as Simor’s replacement, according to the Index news website.
Japan and Hungary show “alarming attacks” on central bank independence, Bundesbank President Jens Weidmann said Jan. 22.
Poland’s Rostowski has said ending monetary easing would be a “serious mistake.” Central bankers will keep cutting borrowing costs, Governor Marek Belka told a Jan. 30 hearing of Senate lawmakers who accused policy makers of acting too late as economic growth slowed to 2 percent last year, the worst result since 2009, while the jobless rate reached 13.4 percent. Poland was the only EU nation to raise interest rates last year.
“I’m not paying attention to calls for further rate cuts,” Belka told reporters today in Warsaw. “Calculating to what extent the slowdown is due to monetary policy is a separate issue. I’ve even heard that we’re responsible for a 1 percentage-point drop in GDP. That’s just grotesque.”
The Russian government is locked in a “huge argument” with the central bank, which is resisting calls to reduce borrowing costs, First Deputy Prime Minister Igor Shuvalov said Jan. 18. Putin said two weeks later that rates “substantially” higher than inflation are a concern.
Central bank Chairman Sergey Ignatiev said Jan. 31 that rates may come down as inflation eases, while First Deputy Chairman Alexei Ulyukayev, a possible replacement for Ignatiev, whose term ends in June, said last month he doesn’t see any potential gains from cutting. Russia was the biggest emerging economy to raise borrowing costs last year to tame consumer prices even as the economy lost steam, expanding 3.4 percent.
The bank will hold the refinancing rate at 8.25 percent for a fifth month next week, according to all 20 economists in a Bloomberg survey. The overnight and one-week repurchase rates will remain at 5.5 percent and the overnight deposit rate will stay at 4.5 percent, two separate surveys showed. Policy makers have room to cut rates by 100 basis points, Shuvalov says.
While politicians have been encouraged to meddle as major global central banks deployed unconventional tools, the phenomenon isn’t evident in all eastern European nations, according to Blaise Antin, who helps manage about $10.5 billion of emerging-market debt at TCW Group Inc.
“The opposite is happening in other places,” he said Jan. 28 by phone from Los Angeles. “In Romania, the government has been relatively hands-off.”
Romania’s central bank left its benchmark interest rate at a record low for a seventh meeting yesterday, even as the International Monetary Fund said the economy probably stagnated last year and will expand less than official forecasts in 2013.
Still, there are signs the pressure tactics are spreading.
While Czech ministers traditionally refrain from commenting on monetary policy, President-elect Milos Zeman, who takes office in March and has the sole right to name central bank board members, said he’d appoint rate setters who support economic growth. That would overstep the bank’s inflation and currency-stability goals mandated by law.
The need for monetary easing still exists, though it may be less urgent as recent weakness in the koruna has loosened monetary conditions, central bank Governor Miroslav Singer told reporters in Prague after the rate decision.
“The pressure on central banks to act in favor of politicians will increase because it’s at the moment just in vogue,” Peter Schottmueller, who helps manage the equivalent of $5.3 billion in emerging-market and European debt at Deka Investment GmbH in Frankfurt, said Jan. 28 by phone. “What we’re talking about is that central banks may target GDP. Isn’t that ridiculous?”