WARSAW: Poland's zloty currency should be weaker than it is now, given international factors such as the tensions over Ukraine, Finance Minister Mateusz Szczurek told Reuters in an interview.
He also said would stick to prudent fiscal policies a major attraction for international investors after the departure of Prime Minister Donald Tusk for a senior job in Brussels.
Szczurek declined to answer questions on whether he will be in the new government assembled by Tusk's successor, but he said what counted for markets was Poland's stable economic policies and that these would stay the same.
Tusk, who has run eastern Europe's biggest economy since 2007, has been appointed head of the European Council.
Markets view Tusk as a guarantor of political stability and pragmatic stewardship of the economy qualities missing under previous governments so his departure is a delicate moment.
"Investors, who have been purchasing Polish treasury papers over the last years, have certainly not been disappointed by the Polish government and this will not change in the future," Szczurek said.
He said Poland would take advantage of record low bond yields to finance about a quarter of its 2015 borrowing needs by the end of December this year.
"Maintaining a favourable market situation would allow for the financing about a quarter of next year's needs already this year without an impact on the yield curve," Szczurek said.
Polish 10-, 5- and 2-year bonds yields all hit an all-time low on Monday, reflecting expectations of rate cuts from the central bank, and also Poland's reputation as a relatively safe haven in a volatile eastern Europe.
Appetite for Poland's bonds helps to strengthen the zloty currency. But Szczurek said the exchange rate should be weaker than it is now, given the "changes in the international external environment".
The tensions over Ukraine and other global hotspots "in a favourable way reduced the possible risk of excessive zloty strengthening, caused for example by the policy of the ECB," Szczurek said, referring to the European Central Bank's latest efforts to pump money into the euro zone economy. A weaker zloty would make Polish exports more competitive.
Szczurek said economic growth will likely reach 3.3 percent in the third and fourth quarter of 2014.
He said in September and October this year consumer prices are expected to fall by 0.3 percent year on year. But he expects Poland to exit technical deflation in November or December. Inflation will stay below 1 percent in the first quarter of 2015, Szczurek said.
He said public investment was set to rise in 2015 by 4.9 percent compared to 2.2 percent this year, an increase partly due to the inflow of a new tranche of European Union aid money.
Tusk's likely successor, party ally and parliamentary speaker Ewa Kopacz, is expected to reshuffle the cabinet.
Polish media have reported that one option under consideration is to replace Szczurek, a former economist with ING bank who was appointed nine months ago. With an election in late 2015 and the ruling coalition unpopular, there will be pressure to increase public spending.
Asked about the reports he could forfeit his job, Szczurek said: "The durability of economic policy is not at risk and thus all personnel changes, even if they took place, are of lesser importance."
In any event, he said, the record low bond yields showed investors "were not especially worried about fiscal policy in Poland."
He said the government does not plan more increases in social spending, following a move to increase the lowest pensions and tax breaks for families with children that will come into force in 2015.
"At this moment additional measures are not planned" Szczurek said in the interview, which was cleared for publication on Tuesday.
WEAKER ZLOTY Policymakers have previously pointed to a risk of zloty appreciation as investors bought Polish bonds, whose attractions are currently enhanced by a 2.50 percent benchmark interest rate, the highest inflation-adjusted rate in Europe.
The government can influence the zloty exchange rate if necessary by adjusting the way that it converts the billions of euros its receives in EU aid money into zlotys.
Changing those euros for zlotys on the market tends to cause the Polish currency to appreciate. The other option, swapping the euros for zlotys at the central bank, is neutral for the zloty's exchange rate.
"I think that converting part of the currency funds at the central bank this year is likely," Szczurek said in his office, decorated with photographs of Marilyn Monroe that Poland acquired in the 1990s as settlement for an embezzlement scandal.
Szczurek said Poland's foreign exchange reserves, now at $102 billion, were sufficiently high for the country to reduce the size of the $33 billion Flexible Credit Line it has from the International Monetary Fund, possibly to about $25 billion.
"We have record low yields with a war happening just beyond our eastern border, and this line is simply needed to a lesser extent now," Szczurek said.
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