Zloty's float still contentious
Banking sources said the central bank would like to win the Finance Ministry's support for the move, but as it is not a legal requirement, the bank could introduce the zloty flotation without reaching a consensus with the ministry.
"The management of the central bank is determined to float the zloty on May 4 regardless of the Finance Ministry's position," said a senior banker, who asked not to be named.
Finance Minister Grzegorz Kolodko and NBP President Hanna Gronkiewicz-Waltz held talks on the issue last week but failed to reach a consensus, said Grazyna Kowalska, Finance Ministry spokeswoman.
Under the new flotation system, commercial banks would set the exchange rate of the zloty within a wide band below and above the central bank's parity mid-rate calculated on the basis of a basket of five currencies and a monthly devaluation factor. The central bank would intervene if it considered interbank rates too low or too high. It would also set an afternoon fixing rate at which banks would be allowed to square their positions with the central bank.
Kolodko, who has been urging lower interest rates, argues that the timing of zloty float may hurt exports and economic growth.
"We have two conflicting short-term goals: curbing inflation and maintaining export growth," he said.
The central bank has said it would consider a rate cut only after last month's slow-down in the growth of consumer prices is confirmed by a similar fall in April. The Central Statistical Office reported this week consumer prices grew 1.7% in March, after a 2.1% increase in February and a 4.1% surge in January.
The central bank wants to float the zloty on the domestic interbank market to allow the exchange rate to better adjust to the supply and demand for hard currencies. So far the exchange rate was fixed daily by the central bank and commercial banks have been allowed to move with their rates within a 4% band around the central rate.
The central bank, supported by the International Monetary Fund, decided to float the zloty, hoping it would help control booming hard currency reserves that led to faster than planned money supply growth. Foreign exchange reserves grew by $1.5 billion in the first quarter of 1995 to $7.5 billion.
"The management of the central bank is determined to float the zloty on May 4 regardless of the Finance Ministry's position," said a senior banker, who asked not to be named.
Finance Minister Grzegorz Kolodko and NBP President Hanna Gronkiewicz-Waltz held talks on the issue last week but failed to reach a consensus, said Grazyna Kowalska, Finance Ministry spokeswoman.
Under the new flotation system, commercial banks would set the exchange rate of the zloty within a wide band below and above the central bank's parity mid-rate calculated on the basis of a basket of five currencies and a monthly devaluation factor. The central bank would intervene if it considered interbank rates too low or too high. It would also set an afternoon fixing rate at which banks would be allowed to square their positions with the central bank.
Kolodko, who has been urging lower interest rates, argues that the timing of zloty float may hurt exports and economic growth.
"We have two conflicting short-term goals: curbing inflation and maintaining export growth," he said.
The central bank has said it would consider a rate cut only after last month's slow-down in the growth of consumer prices is confirmed by a similar fall in April. The Central Statistical Office reported this week consumer prices grew 1.7% in March, after a 2.1% increase in February and a 4.1% surge in January.
The central bank wants to float the zloty on the domestic interbank market to allow the exchange rate to better adjust to the supply and demand for hard currencies. So far the exchange rate was fixed daily by the central bank and commercial banks have been allowed to move with their rates within a 4% band around the central rate.
The central bank, supported by the International Monetary Fund, decided to float the zloty, hoping it would help control booming hard currency reserves that led to faster than planned money supply growth. Foreign exchange reserves grew by $1.5 billion in the first quarter of 1995 to $7.5 billion.
