Poland’s finance ministry and the central bank, each formally independent of the other, have had an amicable relationship since the appointment of a new bank governor in 2010. This extended honeymoon appears to have ended this week when Finance Minister Jan Vincent-Rostowski suggested the central bank could intervene in the Polish government bond market.
Mr. Rostowski said the National Bank of Poland could play a temporary role in absorbing any shocks that might rock the Polish secondary bond market amid the global financial crisis.
“If bond yields rise due to panic or a virus imported from the outside and not due to mismanagement of public finances, then it might be proper for the NBP to intervene,” Mr. Rostowski said in an interview with the Polish edition of Newsweek.
The remark raised some eyebrows, although eventually market participants decided to ignore it. Trading was slow on Monday, the first trading day of 2012, and some major markets were closed. And Polish bonds don’t need a rescue—the yield on 10-year treasury paper hovers around 5.88%, well off this year’s peaks or even below the levels seen in November.
But the central bank’s reaction shows it was taken by surprise. In a dry statement, it said that while the law doesn’t explicitly forbid its intervention in the bond market, the central bank’s monetary panel didn’t include such a policy tool in its plans for 2012, and that the central bank can’t replace the government in managing the public finances.
The bank also said that even a mention of the words “panic,” “falling bond prices,” and “need for bond market intervention” in one sentence could trigger a sell-off, given investors’ frail nerves.
The spat was quite unusual. Since Marek Belka’s appointment as central bank governor in 2010, the relationship had been so good some analysts thought it was too cosy and “too pro-government.”