Pol­ish cen­tral banker warns on bud­get

The Pak Banker - - COMPANIES/BOSS -

Poland's only rate set­ter who'll re­main af­ter this year's changeover says the next move in bor­row­ing costs may be up, even as in­vestors bet on the in­com­ing mon­e­tary panel to loosen pol­icy.

The Mon­e­tary Pol­icy Coun­cil "should pretty soon change its bias," con­sid­er­ing the out­look for fis­cal loos­en­ing and a pe­riod of one to two years needed for the cen­tral bank's de­ci­sions to im­pact the econ­omy, Jerzy Osi­atyn­ski, whose six-year term doesn't end un­til De­cem­ber 2019, said in an in­ter­view in War­saw on Thurs­day. From 2017, pub­lic fi­nances seem "dif­fi­cult to hold on a leash," he said.

"We're in a wait-and-see mode, with the prospect for mon­e­tary pol­icy tight­en­ing rather than loos­en­ing," said Osi­atyn­ski, one of 10 pan­elists who sets Pol­ish rates. "A pe­riod of in­ter­est-rate sta­bi­liza­tion is rather be­ing ex­tended. It will be a time for close mon­i­tor­ing and vig­i­lance over the sig­nals com­ing from the sphere of fis­cal pol­icy." Risks are con­verg­ing on the bud­get, with the nine-week-old govern­ment in War­saw locked in a stand­off with the Euro­pean Union that threat­ens in­vest­ment in Poland. Stan­dard & Poor's, which shocked in­vestors last week by cut­ting the na­tion's credit rat­ing by one level, said rev­enue mea­sures to off­set higher spend­ing won't be suf­fi­cient and de­scribed the macroe­co­nomic as­sump­tions be­hind the 2016 bud­get as "too op­ti­mistic."

By broach­ing the pos­si­bil­ity of the first in­crease in in­ter­est rates since 2012, Osi­atyn­ski is the lat­est pol­icy maker to put the cen­tral bank on a col­li­sion course with the rul­ing Law & Jus­tice party. A week af­ter Poland's first-ever down­grade by S&P sent bonds and the zloty tum­bling to a four-year low, cen­tral bank Gov­er­nor Marek Belka called a pro­posed law on for­eign-cur­rency mort­gages "pure evil."

The re­cent de­pre­ci­a­tion of the Pol­ish cur­rency is "only tem­po­rary" as "se­ri­ous and longterm in­vestors know for sure that the zloty is no­tably un­der­val­ued," he said. The zloty had its big­gest gain in more than a month fol­low­ing Osi­atyn­ski's com­ments. It traded 0.9 per­cent stronger at 4.4533 against the euro at 11:31 a.m. in War­saw. Osi­atyn­ski's re­marks "open a dis­cus­sion about rate hikes if the zloty will de­te­ri­o­rate fur­ther" and show the MPC "will be very cau- tious with sig­nal­ing any pos­si­ble loos­en­ing," said Miroslaw Budz­icki, a fixed-in­come strate­gist at Poland's largest len­der PKO Bank Pol­ski SA. "Af­ter such com­ments it seems that a 25ba­sis-point rate cut priced in the mar­ket now may be con­sid­ered un­jus­ti­fied and may dis­ap­pear." The pos­si­ble need for mon­e­tary tight­en­ing has al­ready been dis­cussed among the out­go­ing pol­icy mak­ers, ac­cord­ing to Osi­atyn­ski.

"I'm not sure if new mem­bers will be con­vinced enough to use such a tool in re­ac­tion to pos­si­bly over-ex­pan­sive fis­cal pol­icy," Osi­atyn­ski said.

Law & Jus­tice's spend­ing pledges have stoked con­cern that its poli­cies may worsen the fis­cal deficit and hurt the coun­try's sta­tus as a re­gional haven. With eight mem­bers of the 10per­son rate coun­cil leav­ing in the com­ing weeks, the lead­er­ship tran­si­tion prom­ises to re­shape mon­e­tary pol­icy in Poland af­ter the rul­ing party said it was seek­ing can­di­dates who'll sup­port eas­ing and wants the cen­tral bank to help spur eco­nomic growth.

The cen­tral bank last cut its bench­mark to 1.5 per­cent per­cent in March and has since ar­gued against re­sum­ing eas­ing even as de­fla­tion deep­ened more than ex­pected. For­ward-rate agree­ments haven't shown bets for tight­en­ing in the next 12 months since Au­gust. The con­tracts traded 26 ba­sis points below the War­saw In­ter­bank Of­fered Rate on Fri­day, in­di­cat­ing scope for more than a quar­ter-point of eas­ing. Osi­atyn­ski joined the coun­cil in De­cem­ber 2013, re­plac­ing Zyta Gilowska, who quit for health rea­sons.

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