New coalition government may step in to lower interest rates

The new government hopes that the relatively tight budget draft it proposes for next year will persuade the Monetary Policy Council (RPP) to lower interest rates and there are some signs this could indeed be the case. On Friday, RPP member Jerzy Pruski welcomed the plans of Finance Minister-to-be Marek Belka to freeze spending at the 2001 level in real terms and keep the deficit under zl.40 billion - or 5% of GDP. "If this (spending) limit is kept, as well as the deficit level, then we have a wholly new quality of adjustment. This is a breakthrough piece of news," said Pruski. According to the budget draft prepared by the outgoing government, spending was to reach zl.197 billion next year, while Belka said it would probably be no higher than zl.183 billion. SLD, the leading party in the new government, maintains that it does not want to limit the independence of RPP in setting interest rates, but it is also hinting that it might be forced to do so, if RPP does not revise its policies and lower rates. "The Council should take into account that there is a clear [Parliamentary] majority which is demanding a change in RPP's policy and I believe that this expert body will indeed take this fact into consideration," said the Prime Minister-to-be Leszek Miller on Friday. (Gazeta Wyborcza, Oct. 6-7, p.26) T.J.