Polish Central Bank Settles Profit Spat, Leaving Bigger Deficit

April 28 (Bloomberg) -- Poland’s central bank, which will probably announce unchanged interest rates today, voted to approve a smaller profit for 2009, ending an internal dispute and reducing the amount of money transferred to the state budget.

The bank yesterday approved a profit of about 4 billion zloty ($1.34 billion) for 2009, a member of the rate-setting Monetary Policy Council, who declined to be identified because the figure hadn’t been published, said in a telephone interview yesterday.

The MPC, in which six of the nine members were appointed last quarter by the government of Prime Minister Donald Tusk, had wanted to double the amount of money available to boost the state budget by reducing provisions set aside to maintain zloty stability. The bank’s management board was against the proposal.

“This is still some support for the budget-deficit financing, though 8 billion zloty would certainly have helped more,” said Maja Goettig, chief economist at Bank BPH in Warsaw.

The decision put to rest a dispute between the management board and the MPC that had threatened the bank’s independence, Monetary Policy Council member Adam Glapinski said in an April 26 interview.

“It’s unfortunate this conflict was ever made public,” Marian Noga, a former member of the rate-setting panel who attended part of the policy meeting, said in an interview.

The MPC this year changed the bank’s rules to reduce provisions set aside, a move that would double the profit to about 8 billion zloty and bolster the state budget.

‘Sackcloth, Ashes’

“The MPC had no need to change the rules in the first place, and now their only recourse is to don sackcloth and ashes, agree to whatever profit figure the management proposes and end this conflict as soon as possible,” Noga said.

The amendment would have raised the bank’s foreign exchange rate risk by reducing reserves held to offset zloty volatility. The European Central Bank said in an April 23 opinion “concerns may arise about whether this process is sound, well-coordinated and transparent.”

Poland’s budget deficit will reach 7.5 percent of gross domestic product this year, the EU forecasts, up from 7.1 percent last year. Inflation in March slowed to 2.6 percent, a 30-month low, just above the central bank’s 2.5 percent target for the end of the year.

The bank will leave the benchmark seven-day reference rate at a record-low 3.5 percent, according to all 18 economists surveyed by Bloomberg. The decision, the first since the death of Governor Slawomir Skrzypek in an April 10 plane crash, will be announced at about noon in Warsaw. The rate meeting, which started yesterday, includes former council members as the bank’s profits are discussed, according to three central bankers who declined to be identified.