The youngest of Poland’s new central bankers has seen enough to value stability above all else.
“A change in interest rates would be an unnecessary action, providing only additional uncertainty to the market,” Marek Chrzanowski, a 36-year-old member of the Monetary Policy Council, said in an interview in Warsaw. “Currently, refraining from changes in interest rates best serves the stability of the financial system.”
As the European Central Bank’s unprecedented stimulus measures warp credit markets and confound other policy makers, holding Poland’s benchmark rate at a record low keeps the nation’s financial system in balance, according to Chrzanowski. While traders are still betting on some additional monetary easing over the next half year, he’s the latest newcomer to the rate-setting board to speak out against cuts.
That’s putting to rest concerns that the policy makers appointed by the Polish president and his allies at the ruling party may tip the balance in favor of lower borrowing costs to stimulate the economy. The previous 10-member council kept the benchmark at 1.5 percent since last March, staring down the nation’s longest and deepest period of deflation that’s left the central bank’s 2.5 percent target for price growth out of reach for two years.
“Of course it doesn’t mean we’re not inclined to use monetary tools because we decided to monitor only,” Chrzanowski said. “If necessary, we would have changed rates regardless of the fact that the council is new and has only just begun its term.”
Speaking in support of the emerging consensus on Friday, another central banker, Lukasz Hardt, said the likeliest path right now is to keep rates stable. The National Bank of Poland needs policy room to respond to any unexpected developments, Hardt told news service PAP in an interview.
Among the central bankers who’ve publicly commented on monetary policy this week, Jerzy Zyzynski is the only one to allow for the possibility of some easing. There’s “limited” room for cuts, and Poland needs to find a way “for monetary and fiscal policy to work together,” Zyzynski told reporters Friday.
Challenges abroad and at home will keep the central bank on alert. Risks to the stability of Poland’s financial system will persist this year and next, meaning policy makers must remain vigilant and prepared for different scenarios that can unfold in the global economy, according to Chrzanowski.
Entrenched price declines are another dilemma for policy makers, whose latest projection showed deflation lasting through the third quarter, longer than previously forecast. Since it’s largely imported by way of cheaper commodities and food costs — and therefore remains outside the central bank’s control — no policy response is needed because any action might prove to be “hasty,” Chrzanowski said.
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Factors both domestic and foreign keep him upbeat that Poland only needs a matter of months to emerge from deflation. These range from increasing consumer demand and a strong German economy to declining unemployment and the government’s program of child benefits. The central bank now forecasts the economy will expand 3.8 percent this year and next, up from previous projections of 3.3 percent and 3.5 percent.
Chrzanowski says the council isn’t in thrall to a “dream scenario” of harmless deflation and well-balanced growth. It’s considering possible triggers for a rate change in response to unconventional policies by major central banks and increased volatility across global markets, he said.
“Recent action by the ECB rather tilts the zloty toward strength,” Chrzanowski said. “However, because the zloty has severely weakened in the past months, current appreciation doesn’t represent any threat to our economy.”
The new government in Poland has imposed a new tax levy on banks, whose impact on lending “can’t be yet assessed,” Chrzanowski said. That contributes to risks faced by the Polish financial system, along with a downgrade of the country’s rating by Standard & Poor’s. Another challenge stems from regulations of Swiss franc loans, with a bill drafted by President Andrzej Duda’s office being debated by domestic banking institutions. There’s no deadline for when the bill should be ready.
“The solution should be found relatively quickly and it should be safe for the financial system,” Chrzanowski said. “ I’m positive that politicians will behave responsibly enough to adopt a solution acceptable for banks and borrowers, without putting the banking system at any significant risk.”
(Updates with central banker comments starting in sixth paragraph, Chrzanowski’s quotes in last two.)
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