November 24, 2014 / 6:21 PM / 5 years ago

Poland's Belka concerned zloty will rise against euro

VIENNA (Reuters) - Polish central bank head Marek Belka is worried that the zloty will rise against the euro, a move that would hamper business and could affect interest rate policy, he told Reuters on Monday.

Marek Belka, Poland's central bank governor speaks during a news conference at the bank's headquarters in Warsaw October 8, 2014. REUTERS/Slawomir Kaminski/Agencja Gazeta

The zloty is not overvalued now, he said in an interview at an economics conference in Vienna.

“What I fear is a resumption of the appreciation trend of the zloty against the euro. This may complicate business recovery,” he said. “This would be a factor in our discussions on the further stance of monetary policy.”

Poland kept its key interest rate unchanged this month, confounding expectations of a cut, and signaled that only a deterioration of the outlook for economic growth would prompt more monetary easing.

But with economic growth at 3.3 percent in the third quarter and consumer prices falling at their fastest pace in over three decades last month, the central bank’s Monetary Policy Council (MPC) was split over the way forward.

“Some would look to go further with rate cuts, some don’t want it and some would like to wait,” Belka said. “So we are now in a situation in which it is hard to define which way it will go.”

Some MPC members thought that as long as no major slowdown loomed, cutting rates was more dangerous than not cutting. That view has dominated despite Belka’s minority stance, he said.

“I have made it clear that I think there is still some space to cut rates,” he said.

Belka said as long as wages rise, deflation should disappear early next year. But deflation was the focus of the MPC’s discussions as it wrestled with the consequences of falling prices.

With no excessive debt to be inflated away, Belka said, deflation could come to be accepted in Poland, unlike the worry in the euro zone. Asked if that was a reason to cut rates more, he said:

“If you don’t have inflationary pressures on the horizon, then why not? It’s not a game changer for the economy these days, but it may help. But it may also destabilize certain behavior by people,” citing some junk bond yields at just 4 percent.

Belka said he did not think it was important to get inflation to the target of 2.5 percent by end of the MPC term in 2016, adding MPC members did not care about this. He dismissed any suggestion of lowering the target.

“The next MPC will inherit record-low inflation,” he said.

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