Polish Opposition Seeks ECB-Style Loan Program by Central Bank

  • Law & Justice sees 350 billion zloty in central bank loans
  • Central bank should help economic growth, party spokesman says

Poland’s Law & Justice party, leading in opinion polls before Sunday’s general election, wants the central bank to funnel 350 billion zloty ($93.5 billion), or almost a fifth of gross domestic product, in loans to commercial lenders to boost growth.

Styled after policies at the European Central Bank, the party envisages a six-year program of zero-interest rate loans, which would be used to finance investments, Law & Justice’s economic spokesman Henryk Kowalczyk said on Tuesday. The party seeks to accelerate economic growth from about 3.5 percent, saying that such expansion isn’t strong enough to significantly improve the labor market.

“If the ECB can do it, then our central bank could do it too,” Kowalczyk said in a phone interview on Tuesday.

As central banks around the world seek new ways to help growth, Polish monetary-policy makers have been reluctant to expand their toolbox beyond conventional measures. Governor Marek Belka has been at odds with opposition leaders over the institution’s role in steering the economy and has clashed with President Andrzej Duda, a former Law & Justice lawmaker.

The opposition is now setting its sights on the neighboring euro area, where the ECB has had two programs to provide euro-area banks with cheap long-term loans. The first commenced in 2011 and handed banks unlimited cash with no strings attached for as long as three years. The current one is tied to banks’ lending behavior. Interest in both programs has been tied to the ECB’s benchmark rate, which now stands at 0.05 percent.

Szydlo’s Call

Law & Justice has called for a more active central bank in Poland. Beata Szydlo, the party’s candidate for prime minister, has said the monetary authority should facilitate cheap loans to small and mid-sized companies, emulating a policy pursued by the National Bank of Hungary. The next parliament will appoint six members of the central bank’s 10-person Monetary Policy Council by February, meaning Law & Justice may get a chance to shape the next rate panel.

Two other MPC members will be picked by Duda, who’ll also nominate the next central bank’s governor after Belka’s term ends in June.

The zloty fell 0.2 percent to 4.2541 per euro at 3:29 p.m. in Warsaw, increasing its loss to this month to 0.2 percent, the worst run among 12 currencies from developing Europe.

Law & Justice is “far from trying to subjugate the central bank,” Kowalczyk said. “However, we believe that the central bank shouldn’t only be the guardian of inflation and a stable currency, it should also take responsibility for economic growth.”

Independence Threatened?

Broadening the policy makers’ mandate to include economic expansion, which under the National Bank of Poland’s charter is a subordinate goal to maintaining price stability, may “threaten central bank independence,” said Roxana Hulea, a London-based strategist at Societe Generale SA. “Surely, that will displease foreign investors, who are already quite skeptical about Law & Justice proposals.”

The MPC held its benchmark interest rate at a record-low 1.5 percent for a sixth meeting this month, with Belka dismissing market expectations of another cut even as deflation deepened. Consumer prices have been falling for 15 months.

Cutting interest rates would be “justified as deflation is very harmful for Polish economy,” Kowalczyk said.

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