April 17, 2018 / 1:00 PM / 6 days ago

Polish central bank's Hardt says thinking about unconventional tools

WARSAW (Reuters) - If Polish economic growth slowed sharply and inflation stayed below the central bank’s target, it could respond with unconventional policy tools similar to those used by the ECB, rate-setter Lukasz Hardt said.

It is the first time a Polish central banker has publicly discussed such action and details of other non-standard policy measures. For years they have taken pride in sticking to conventional policy tools.

For Hardt’s quotes, click on:

Hardt said he was currently considering other ways to manage excess liquidity in the banking sector, which stands at about 90 billion zlotys ($27 billion) and is drained by the central bank in weekly seven-day bill tenders.

Hardt also told Reuters in an interview that cutting the benchmark interest rate in the event of a sharp slowdown would not help the economy and could have the adverse effect of hurting the profitability of the banking sector.

He said the probability of a rate hike this year was practically zero while in 2019 the chances of a rate hike or unchanged rates were balanced. He said the idea of loosening monetary policy in 2019 was basically ruled out.

It is not clear how much support Hardt has on the 10-member Monetary Policy Council for his ideas about non-standard policy measures.

The European Central Bank has bought back hundreds of billions of euros in treasury and corporate debt in the euro zone. Estimates show that it currently has on its balance sheet well above 20 percent of all outstanding treasury bonds in the euro zone.

Polish central bank governor Adam Glapinski said this month he saw no reason to change interest rates over the next two years given subdued inflation levels.

Glapinski said that a moment may come in future when the bank needs to support the economy but that there was no need to do so now.

The Polish central bank has kept its main interest rate unchanged at 1.50 percent since March 2015.

Inflation unexpectedly eased to 1.3 percent year-on-year in March.

($1 = 3.3629 zlotys)

Reporting by Marcin Goettig and Pawel Sobczak; Editing by Hugh Lawson

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