New Polish Cabinet Sets Sight on Central Bank-Fueled Growth

  • New premier promises to uphold spending promises; zloty slumps
  • Szydlo prods central bank to start LTRO-style lending program

Poland’s Prime Minister Beata Szydlo promised an unprecedented 1 trillion zloty ($250 billion) investment program to accelerate what’s already one of the European Union’s fastest-growing economies with help from cheap loans from the central bank.

Szydlo pledged to fulfill her Law & Justice party’s campaign promises to boost child subsidies and reduce the retirement age, paying for the additional expenditure with a combination of new levies on banks and supermarkets, better tax collection, more dividends from state-owned companies and a wider budget deficit. She wants the National Bank of Poland to introduce a low-interest credit program for companies modeled on the European Central Bank’s Long-Term Refinancing Operation, or LTRO, as part of the government’s effort to boost investment in the $548 billion economy.

“Development, development and once again development -- this is our priority,” Szydlo said in her policy speech to parliament on Wednesday. “We want as many Poles as possible to benefit from the fruits of economic growth.”

Lawmakers approved Szydlo’s cabinet in a confidence vote on Wednesday, by a margin of 236 to 202 with 18 abstentions. Law & Justice won last month’s election after pledging to overhaul the economy, which expanded 3.4 percent in the third quarter from a year earlier, and to take Poland out of the EU “mainstream” by focusing more on national interests.

Monetary Independence

Szydlo said the LTRO plan depended on “good cooperation” with the central bank, whose Governor Marek Belka’s term ends in mid-2016. Deputy Prime Minister Mateusz Morawiecki said it was up to the “independent” monetary authority to determine the program’s scope and details. Bankers and economists have questioned the need for such stimulus with Polish corporate loans growing near the fastest pace in three years.

The zloty weakened against the euro and Polish bonds declined as Szydlo didn’t tone down her party’s spending proposals, as some investors had expected, according to Sebastian Cichy, a fixed-income trader at Bank BGZ BNP Paribas SA in Warsaw. The currency weakened as much as 0.4 percent against the euro on Wednesday and traded at 4.2468 by 10:17 p.m. in Warsaw.

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