• Glapinski’s appearance is first since nomination by president
  • Central bank has kept key rate at record-low since March 2015

Polish borrowing costs are at the “right” level and further decreases would pose a risk to financial stability, according to the nominee for central bank governor.

The National Bank of Poland, which declared a three-year easing cycle was over in March 2015, “may have reached bottom” on interest rates, Adam Glapinski, 66, said during a parliamentary committee hearing in Warsaw on Friday. The public appearance was his first since President Andrzej Duda nominated him this month to replace Marek Belka, whose six-year term expires June 11.

“To all those who ask why they’re not lower, I would say: they’re already low and lowering them even more would threaten financial stability,” he said.

Glapinski, a member of the Monetary Policy Council for the last six years, is set to take over as the economy grows at its slowest since 2013 and investors stay on alert over heightening political risks in the country. By closing the door to deeper easing in Poland, Glapinski is putting to rest concerns that a slate of policy makers nominated by Law & Justice, the new ruling party in Poland, would undermine the credibility of the central bank with loose or unorthodox measures.

After securing a recommendation at the committee level, Glapinski’s candidacy will be voted on by the full lower house of parliament next month.

‘Schumpeterian Conservative’

“I am no Keynesian, I am no Monetarist,” Glapinski said. “I am a Schumpeterian conservative,” he said, referring to Austrian economist Joseph Schumpeter, who popularized the term “creative destruction.”

The central bank has kept its benchmark rate at 1.5 percent, pointing to signs of economic growth and stressing that the longest deflation in 60 years is being fueled by factors beyond its control, such as falling oil and food costs.

The stability of the financial system may become “more important” than interest rates in two to three years, Glapinski said, adding that he’s in favor of shifting powers to oversee financial markets to the central bank. He also vowed to make sure the central bank is independent, saying that “means independence from the government.” The governor can’t be entangled in political disputes, he said.

Close Ties

While Glapinski has spoken out in defense of the central bank’s independence, his close ties to Law & Justice leader Jaroslaw Kaczynski, the most-powerful man in Polish politics, have raised questions about where his loyalties lie. 

Law & Justice officials have called for more “cooperation” with the central bank to speed up the economy and discussed giving the monetary authority “more up-to-date” policy tools. Investors sold Polish assets as authorities imposed new taxes on banks, rolled out a program of child benefits that may swell Poland’s budget deficit beyond European Union limits and debated forcing lenders to convert the equivalent of $36 billion in Swiss franc-denominated home loans.

Polish assets have suffered since S&P Global Markets unexpectedly downgraded the nation’s creditworthiness in January over concern the ruling party is imperiling Polish institutions. The zloty has declined 4.1 percent against the euro this quarter, the third-worst performer among its peers in emerging markets.

Zloty Float

The zloty is floating and subject to pressure from outside Poland, Glapinski said, adding that the central bank reserves the right to intervene on the currency market. Its interventions are “small” in scale and don’t aim to reverse trends in the market, he said.

The nominee sounded committed to continuity in monetary policy, and his focus on the stability of the financial system “strongly” suggests there will be no more rate cuts, according to Witold Chusc, fund manager at at the Warsaw-based mutual fund Altus TFI SA.

“Glapinski has proven his credibility and reduced concerns that he will try to help the government by further monetary loosening,” Chusc said. “It was something investors may like, and it also should support Polish long-term government debt.”

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