Polish Central Bank’s Biggest Dove Says It’s Time for Stock Buys

(Bloomberg) -- Poland’s most-dovish central banker says the time has come to include stocks in the billions of dollars of asset-purchases being deployed to revive the economy from its coronavirus-induced lockdown.

As far as interest-rate cuts go, the three reductions to date -- to the lowest level in eastern Europe -- are sufficient at present, according to Monetary Policy Council member Eryk Lon. But now may be the moment to explore his long-held call to follow the Bank of Japan into buying equities.

“The purchase of corporate bonds and company shares should be seriously considered,” Lon said in an in interview Thursday in Warsaw. “Public institutions around the world appear increasingly convinced of the need to increase their involvement in the stock market.”

Like other emerging markets, Poland has embraced quantitative easing alongside fiscal support in the wake of the Covid-19 pandemic. Already at 85.4 billion zloty ($21.3 billion), the bond-buying program is one of the developing world’s biggest.

But when it comes to stock purchases, Lon represents a lone voice on the 10-person MPC -- even with Governor Adam Glapinski pledging Poland will do “whatever it takes” to weather the economic storm. The situation is familiar for Lon: he’s called for looser monetary policy in the past as most of the world tightened, and urged rate cuts as inflation soared.

But he says corporate-bond purchases among the world’s leading central banks are “slowly becoming a normal, usual form of monetary-policy easing,” and stocks may be next. Buying shares directly, or exchange-traded funds like the Bank of Japan, “in the future may become more common.”

Poland’s benchmark WIG20 stock index is down 15% this year.

Acquiring equities, which can boost investments by luring cash away from traditional deposit instruments, is widely seen as an radical option that Japan chose after years of ultra-loose monetary policy failed to produce the desired results. Poland’s economy, on the other hand, is tipped to contract the least in the European Union this year, with Lon predicting a recovery in the third quarter.

Lon himself opposes another extreme policy position -- negative rates, which recent improvements in consumer and manufacturing data suggest “don’t seem to be currently needed.”

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