UPDATE 2-Polish central bank asserts independence from government

Fri Jul 11, 2014 11:54am EDT

Related Topics

* Central bank issues statement on law amendment

* Board and rate-setters say will work out joint position

* Bank says draft law must protect rate-setting council

* Bratkowski dissents from statement

* Statement follows scandal over secret recordings (Updates with dissenting rate-setter, source)

By Christian Lowe and Marcin Goettig

WARSAW, July 11 (Reuters) - Poland's central bank will propose ways to enhance its independence from the government, it said on Friday, seeking to take the sting out of leaked recordings of its governor in private conversations with a minister.

Andrzej Bratkowski, who sits on the central bank's Monetary Policy Council, said he did not agree with the bank's initiative, but a source close to the council said he was an isolated dissenter and would not disrupt the bank's work.

Some in Poland saw the leaked conversation between central bank governor Marek Belka and the interior minister as failing to respect the separation between the central bank and the government and threatening the independence of the rate-setting Monetary Policy Council (MPC).

In the recording, Belka discussed ways the bank could use its monetary tools to help the government avoid election defeat. He used an expletive to describe the council, and said it could be bypassed if it tried to stop the bank helping the government.

In a joint statement on Friday, the central bank's board and the MPC said they would submit recommendations for changes to a draft law on the central bank. The assumptions for the draft law have been approved by the government.

"The proposed changes cannot limit the powers of the Monetary Policy Council, or change the way it is appointed or its numbers," the statement said.

It said the law must be in line with rules on central bank independence, including making sure the central bank does not print money to help out the government.

"The Monetary Policy Council and the board state that the constitutional prohibition on the central bank financing the budget deficit must be preserved in the draft law and fully respected in practice," the statement added.

"POINTLESS OR WRONG"

In an interview with Obserwator Finansowy, the news portal of the central bank, Belka said the draft law would set out the bank's role in dealing with systemic risks to the economy, and so needed careful consideration.

"Any solutions in proposed amendments to the law which might limit the competences of the MPC are either pointless or wrong," Belka was quoted as saying. He said he believed that a compromise was possible on the new law.

Bratkowski, who was appointed to the MPC in 2010 with the backing of the ruling coalition, said the central bank's statement was not supported by all council members and was not put to a vote.

"The initiative of the board and members of the Monetary Policy Council has a truly political character and thus violates the rule of being apolitical," Bratkowski was quoted as saying by state news agency PAP.

Bratkowski has a history of dissenting from central bank positions. In 2010, he threatened to resign unless the central bank's profits for the previous year were re-calculated. His demand was not met, but he stayed in the job.

"This is a lone voice on the Council and it should not disrupt its further work," said the source close to the bank, who spoke to Reuters on condition of anonymity.

The recordings of Belka and Interior Minister Bartlomiej Sienkiewicz conversing over dinner in the private room of a Warsaw restaurant were published in news magazine Wprost.

Both men say they were talking about hypothetical scenarios, were not plotting any kind of deal, and that the published excerpts of their conversation distort what they were saying.

After the recordings were published, some analysts said the central bank's credibility was dented because investors could not know with certainty if its decisions were in the interests of monetary policy, or based on political motivations.

If the central bank's recommendations are incorporated into the draft law on the central bank, that is likely to go some way to reassuring investors on this point. (Additional reporting by Adrian Krajewski; Editing by Ruth Pitchford)

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