| The Vienna Institute for International Economic Studies - WIIW |
Ineffective but not inactive: Poland's Monetary Policy Council
fights inflation
Since the beginning of 1999 Poland's monetary policy has been implementing
what is described as direct inflation targeting, with interest rates
as the only instruments available. So far the policy has failed rather
miserably. The targets, which tend to reflect wishful thinking or mechanical
extrapolation of recent inflation trends, are missed by wide marks. There
is yet little evidence that the Monetary Policy Council has been learning
from its own mistakes. Worse still, its analysis of inflationary acceleration
which started in the second half of 1999 seems superficial, if not faulty.
The repeated decisions on raising (already very high) interest rates taken
during that period have probably had the expected effect on money supply,
credit and domestic demand – but certainly not on inflation.
Croatia: New government, old policy
Since the end of the autocratic regime of former President Tudjman,
the new Croatian government enjoys full diplomatic support of the international
community. Still, after years of an IMF-type anti-inflationary policy of
a stable but overvalued exchange rate, the economic situation is worrying.
While a group of economists supported by the new president call for devaluation,
a peculiar coalition of government members and the proponents of the former
regime wants to follow the old strategy endorsed by the IMF.
The zloty on the float
On 12 April 2000, Poland followed the example of many other emerging
economies and introduced a floating exchange rate. Shortly afterwards the
zloty first depreciated and then rebounded. The volatility of the zloty
is best explained by the shallowness of the forex market – and the changing
beliefs about the short-term prospects of the Polish economy. In the near
future Poland is unlikely to suffer an abrupt reversal of capital flows
and a strong depreciation, even if the current account deficits remain
large. The risk of such a reversal (and a strong depreciation) is likely
to increase in the longer run yet.