The new legal regime and adoption of direct inflationary targeting by the National Bank of Poland have imposed an additional challenge on the monetary and fiscal authorities as to the scope and methods of coordinating both policies.

The Constitution provided NBP with an exclusive right to formulate and pursue the monetary policy. A new body of the central bank was appointed - the Monetary Policy Council - and obliged to determine monetary policy program. Under the Council's decisions, starting in practice from 1998, direct inflation targeting was adopted. This replacement means a necessity to pursue more transparent and, at the same time, more flexible monetary policy with the use of all available instruments. Reliability of the monetary policy became a specific instrument of the new strategy. At the same time, it is determined not only by the reliability of the monetary authorities actions but also by the reliability of the fiscal policy affecting to a much extent the achievement of the inflationary target adopted.

Thus, efficiency of the monetary policy anti-inflationary measures, under the new strategy, requires not only a good statistical base, and a full recognition of the transmission mechanism and its impulses for the economy. It is also necessary to have a comprehensive base of reliable information on the fiscal policy, such as, for example, performance of the whole public sector, including health funds, specific funds and self-government finance, deficit financing and public debt management, methods and timing of privatization, income policy, scale and timing of changes in controlled prices, amount and structure of public income and expenditure. Without the above it is practically impossible to develop inflationary prognoses and provide for related accurate judgements.

Increase of the statutory independence and NBP accountability for stabilizing the national currency requires also from the Ministry of Finance to quit inflation targeting in practice. Decisions on inflation, interest rates and exchange rate taken for purposes of the budget program for a given year should be preceded by consultations with the Monetary Policy Council and final agreement (at this stage) by the Council of a draft monetary policy program. The next stage of coordination should take place at the final stage of developing a draft budget. Only then its analysis in terms of its impact on the monetary policy and revision of the draft program in the context of current inflationary developments and updated prognoses should constitute the basis for establishing an annual inflationary target as a range. Lack of coordination between the two authorities or subordination of the inflationary target to the fiscal policy may cause discrepancies in programs and macroeconomic chaos with all their negative consequences for the real sphere and an effective disinflation. Thus, presented coordination procedures of the fiscal and monetary authorities seem to be a chance for eliminating inconsistencies of both policies at the stage of their development and performance.