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UPDATE 1-Polish election front runner wants central bank to lend more
October 20, 2015 / 2:35 PM / 2 years ago

UPDATE 1-Polish election front runner wants central bank to lend more

(Adds detail, market reaction)

By Jakub Iglewski and Pawel Sobczak

WARSAW, Oct 20 (Reuters) - Poland’s Law and Justice party, which looks set to win an Oct. 25 election, wants the central bank to lend commercial banks an additional 350 billion zlotys ($93.71 billion) over six years to support economic growth, a lawmaker said on Tuesday.

Henryk Kowalczyk, one of the Law and Justice (PiS) party’s leading economic thinkers, said the programme would amount to 20 percent of Poland’s GDP.

“This could be an operation resembling what is being carried out by the ECB, so the National Bank of Poland would be lending to commercial banks,” said Kowalczyk, without providing details.

His comments added to slight weakening of the Polish zloty against the euro on Tuesday.

The ECB’s programmes of cheap loans for banks aim to boost lending to businesses to reinvigorate the euro zone economy.

In Poland, which is not a member of the single currency, banks are generally healthier than many Western peers.

But PiS wants to slap a tax on banks that would yield up to 5 billion zlotys ($1.33 bln) in extra budget revenues a year, and convert foreign currency mortgages into zlotys at an estimated cost to banks of around 22 bln zlotys.

Implementing both solutions in one year would cut growth in central and eastern Europe’s largest economy by 0.5 percentage point, analysts say. That means PiS may be looking for ways to keep banks healthy.

Polish GDP totals around $535 billion and is currently seen growing by some 3.5 percent in both 2015 and 2016.

SHIFT IN CENTRAL BANK‘S ROLE?

In neighbouring Hungary, also an EU member but outside the euro, the central bank already makes cheap loans to banks.

Hungary’s Prime Minister Viktor Orban has long been praised by PiS leader Jaroslaw Kaczynski for his economic policies.

The PiS idea raised some eyebrows in Poland, where the central bank’s independence is safeguarded by law.

“The central bank’s competences are laid out in the constitution and offering preferential credits ... is not among them,” Polish constitutional law expert Marek Chmaj said.

Nine of the 10 members of the bank’s policy-setting panel see their terms expire next year, however, meaning the election winner and President Andrzej Duda, a PiS ally, will play a leading role in naming their replacements.

The recently elected Duda has already said he wants the bank to play a more active role in the economy.

“Strictly speaking the central bank will become a tool of support for the government’s policy,” one Warsaw-based analyst predicted. ($1 = 3.7458 zlotys) (Additional reportign by Marcin Goclowski, Anna Wlodarczak-Semczuk; Writing by Gabriela Baczynska; Editing by Catherine Evans)

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