Former Polish Central Banker Breaks Silence to Brand Current Policy as Reckless

(Bloomberg) -- Poland's central bank acted recklessly by slashing interest rates to nearly zero, according to former Governor Marek Belka.

One of the most widely known Polish officials by international investors, Belka had largely refrained from speaking publicly about the bank he left four years ago. That changed after last week's unexpected decision to cut rates left him “astonished.”

“Poland's economy doesn't stand out negatively to justify such a drastic move -- quite the opposite,” Belka, who is also a former prime minister, said in an interview Monday. “Rates are too low from the point of view of bank-system stability. This cut is just beyond any understanding.”

The European Union is predicting Poland's economy will shrink 4.3% this year, the least among the bloc's 27 nations. While all 24 analysts surveyed by Bloomberg predicted rates would stay unchanged at last week's meeting, policy makers ordered their third cut since March, lowering the benchmark to a record 0.1% from 0.5%.

‘Unequivocal Beneficiary'

Belka, who ran the central bank from 2010 to 2016 and previously led the International Monetary Fund's Europe Department, said it's difficult to see how the cut would benefit “ordinary savers or lenders” and that the government was “the only unequivocal beneficiary” of the decision.

In a statement published last Thursday, the central bank said that the rate cut would end up helping banks by aiding borrowers. It was also needed to curb the risk of inflation falling below the bank's target. The bank did not immediately respond to request for comment from Bloomberg on Monday.

Communication Criticized

Governor Adam Glapinski didn't hold a news conference for a third month running following the shock cut -- which moved the zloty and bank stocks -- citing safety concerns amid the coronavirus outbreak. Belka joined a chorus of economists criticizing the bank's communication, especially as it ramps up an open-ended bond-buying program.

“Surprising the market doesn't help anyone,” said Belka, who's now a member of European Parliament. “Holding press conferences, commenting on policy, is the central bank's duty -- not some kind of favor by policy makers.”

He said the near-zero rate environment was “extremely concerning” for smaller-scale cooperative banks and credit unions that depend on interest income for survival. The move also also impact bigger lenders and wouldn't spur credit given continued economic turmoil.

“There's painful lack of confidence among individual consumers and among companies,” Belka said. “Monetary easing won't spur much of an interest in borrowing these days.”