Polish Central Bank Picks Stoke Easing Bets, Backing Growth

  • Ruling party candidates favor central bank supporting economy
  • Forward-rate agreements show biggest bets for cuts since Feb.

Candidates to join the Polish central bank’s policy council said they’d be eager to support economic growth, prompting traders to increase bets for monetary policy easing and stoking a rally in two-year bonds.

The central bank can still use rates as an instrument even after the outgoing panel reduced its benchmark to a record-low of 1.5 percent, Eugeniusz Gatnar, a candidate for the 10-person Monetary Policy Council, told lawmakers in Warsaw on Tuesday. The bank can support economic growth as long as it maintains its main goal of keeping prices stable, fellow nominee Marek Chrzanowski said. Both spoke at parliamentary hearings as Poland appoints eight new policy makers for six-year terms in the coming weeks.

“The candidates are clearly dovish, focused on growth,” said Ernest Pytlarczyk, chief economist at Commerzbank AG’s Polish unit, who expects a quarter-point reduction by May. “This won’t be a polarized rate council.”

The changing of the guard promises to reshape monetary policy in Poland after the ruling Law & Justice party said it was seeking candidates who’ll support rate cuts and wants the central bank to help spur economic growth. Six-month forward-rate agreements fell 40 basis points below the Warsaw Interbank Offered Rate at 4:16 p.m. in Warsaw, indicating the biggest scope for monetary easing since February last year, two weeks before Poland last cut interest rates.

Leadership Transition

The yield on government bonds due in October 2017 dipped eight basis points to record low 1.35 percent. The zlotyfell 0.3 percent to 4.3640 versus the euro, extending this year’s loss to 2.4 percent.

In addition to Gatnar and Chrzanowski, Law & Justice’s other candidates for the policy board include Jerzy Kropiwnicki, Grazyna Ancyparowicz, Eryk Lon and Henryk Wnorowski.

Addressing lawmakers on Tuesday, Lon said the central bank should be ready to act because Poland may struggle to emerge from deflation amid a slump in commodity costs. Consumer prices in Poland dropped for an 18th month in December.

Common Goal

“If we get external shocks, then monetary policy should be prepared to mitigate such risks,” Lon told parliament’s public finance committee during the hearing. The central bank also needs to cooperate with the government as “both monetary and fiscal policy have a common, long-term goal, which is the good of the Polish economy,” he said.

Breaking ranks with other candidates of the ruling party, Ancyparowicz told the same hearing that government plans to boost social spending may stoke inflation and the best thing the central bank could do is to maintain “stable and conservative” policy.

“There are absolutely no grounds to change monetary policy,” she told lawmakers. “We may be able to assess whether our stance should change in six months or more when the impact of government plans is known.”

The outgoing council convenes Wednesday to review borrowing costs for the last time in its current makeup, with a decision due the following day. The seven-day reference rate will remain at 1.5 percent, according to all 28 economists surveyed by Bloomberg.

The lower house of parliament will “most likely” vote to choose two nominees to the council on Friday, with a hearing on the third candidacy expected later this month, Andrzej Jaworski, head of the public finance committee, told reporters. The Polish parliament’s upper chamber will pick another three members and the president is due to nominate two others.

Before it's here, it's on the Bloomberg Terminal.