Broken record

In the past few months, the Democratic Left Alliance (SLD)-led government, the European Union, the Organization for Economic Cooperation and Development and the International Monetary Fund have suggested there is room for further interest rate cuts by Poland's central bank. The government has been downright shrill in its hollering for lower rates but the bank's Monetary Policy Council (RPP) has been resistant to the piling on. And perhaps with good reason. The bankers have had trouble tuning interest rates to the economy in the past and they don't want to repeat their mistakes. The RPP overshot its inflation targets in 1999 and 2000, eventually allowing inflation to climb above 11% following an overly ambitious cycle of monetary easing that helped fuel consumption. Last year, its policy makers undershot their targets after they ratcheted interest rates as ridiculously high as 19% and the economy chugged to new lows for post-shock therapy growth. The bankers don't have a record that inspires faith in their long-term view of the economy.

But the RPP should not be made into a bogeyman for the country's economic stagnation. Last week they lopped a bit more off the National Bank of Poland's interest rates, bringing the NBP's main rates to single digits for the first time since the bank's charter was amended and it was mandated with maintaining price stability in 1997. Since well before then, actually, but we start marking the bank's record since that crucial reform. Who was in office when the NBP's charter was rewritten? Ah, yes, the SLD. We wish they would accept credit for a good idea - inflation has been tamed - and let it go at that. But immediately after the RPP announced the rate cut, party leaders sang the same tired verse from the same old song: We want more. Meanwhile, the rest of the country hopes for some more inspired leadership. Signs of a recovery here are limited and the economy is sure to grow only slowly, exacerbating problems among the working class and domestically oriented businesses.

What to do? First, stop blaming the bank. Thankfully, the Sejm's European Committee last week gave a thumb's down to two bills aimed at curtailing central bank independence. While the issue of packing the RPP is certainly not dead, it appears to be losing some momentum. Allowing the central bank to act outside of a political maelstrom will encourage investor confidence that inflation will indeed stay in its cage. Second third and fourth, we'll sing our favorite song: Work on a budget that encourages private investment and limits public spending, institute meaningful structural reforms for the labor market, and get in a position to join the EU and use its money to help along structural reform.

The RPP last week continued a long easing cycle and it can continue to prune rates a bit more through the spring. The government should let the bankers do just that, quietly, and focus on policy that it is supposed to influence.