Belka should cut but will not

The newsflow out of Poland in recent weeks has been dominated by a major scandal that has hit both the Polish government and the Polish central bank (NBP), after two incriminating tapes of key Polish policymakers were leaked by Poland’s Wprost magazine. On one of the leaked tapes, central bank governor Marek Belka is heard making remarks to a minister where he is apparently conditioning monetary easing on the sacking of then Finance Minister Jacek Rostowski.

It is very likely that this scandal will dominate questions from journalists at next week's press conference following the Polish bank rate decision. We expect a key question to be whether Belka’s apparent dislike of Rostowski has meant that monetary policy has been too tight on purpose.

Furthermore, some have speculated ahead of next week’s rate decision whether the scandal could cause the NBP to cut rates next week. However, the consensus remains that the NBP is likely to keep rates on hold next week. This is also our expectation. This said, inflation remains well below the NBP’s official inflation target of 2.5%. Indeed, there is a clear risk that we might get outright deflation in coming weeks and one could certainly argue – as we have done for a long time – that the NBP should ease monetary conditions. However, growth has been picking up in Poland and it is very likely that next week the NBP will point to the continued recovery as a reason not to ease monetary policy.

Concluding, next week’s NBP press conference is likely to be interesting – unfortunately there will likely be little discussion about monetary policy.

Romanian central bank likely to ease further next week

A Romanian rate decision is on the agenda next week. There is a high chance that the Romanian central bank (NBR) could deliver further easing. Even though there is speculation that the Romanian central bank could cut the foreign-currency reserve requirement (which is currently 18%), we think the NBR has enough room to cut its key policy rate in respect of falling inflation, which is now well below the central bank’s official inflation target of 3%. Therefore, we expect the Romanian central bank to cut its key policy rate by 25bp to 3.25% at next week’s monetary policy setting meeting.