Zloty, Polish Stocks Slump After Belka Tapes Spark Crisis

Polish shares fell the most in June as leaked recordings of a conversation between the central bank chief and a minister sparked a political crisis. The zloty pared losses as Prime Minister Donald Tusk defended the policy maker.

The benchmark WIG30 Index decreased 0.7 percent, the most since May 30, after earlier dropping 1.6 percent, while the zloty declined 0.6 percent following a 0.8 percent depreciation. In a secretly-taped 2013 talk between Governor Marek Belka and Interior Minister Bartlomiej Sienkiewicz, published by Wprost magazine two days ago, the men are heard speaking about potential central bank moves to bolster growth.

Belka said he did not break the law and the recording was “manipulated” to suggest “an instance of the central bank governor exceeding his powers, which never took place,” according to an e-mailed statement yesterday. Tusk threw his weight behind the policy maker, saying he didn’t appear to violate laws and that his intent was to help Poland.

“We are witnessing political turbulence, which is adding to downward pressure on the Warsaw bourse,” Marcin Zoltek, chief investment officer at Aviva Plc’s pension fund in Warsaw, with $11.1 billion of assets, said by phone. Political turmoil in Poland is usually a “buying opportunity rather than a time to sell,” he said.

Permanent Pressure

The zloty traded at 4.1429 versus the euro as of 5:25 p.m. in Warsaw. Yields on 10-year bonds rose four basis points to 3.53 percent. The WIG30 Index decreased to 2,615.93, with 10 stocks rising, 19 declining and one unchanged.

“If Belka tries to carry on as head of the National Bank of Poland, that might put permanent pressure on the zloty,” Ulrich Leuchtmann, Frankfurt-based strategist at Commerzbank AG, said in an e-mailed note today.

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.

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 with no political experience, to replace Rostowski in November.

‘Open Question’

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.

Belka’s future is an “open question,” Magdalena Polan, an economist at Goldman Sachs Inc., wrote in a research note today. “A change at the NBP’s helm could lead only to a temporary market reaction, especially” on the currency market.

The reaction “would be more pronounced” if recordings lead to a “government crisis or early elections,” she said.

“I share the opinion of the central bank governor that no matter how hideous the comments were, they were talking about ways to help Poland,” Tusk told reporters today in Warsaw.

Jaroslaw Kaczynski, leader of Law and Justice, the biggest opposition party, demanded the Cabinet quit. The opposition doesn’t have enough votes in parliament to sack Tusk or shorten the parliamentary term, which is set to last until late 2015.

Barclays Plc’s analysts Daniel Hewitt and Koon Chow see the “negative” impact of the tapes on local markets as limited due to the “strong position” of the country’s economy, they said in a note today.

Before it's here, it's on the Bloomberg Terminal.