Biggest Dove on Polish Central Bank Says Wait a `Few Months'

  • Zyzynski says rate cut `desirable,' seeks debate on MPC's role
  • Council in transition, awaits new governor, policy maker says

The most vocal proponent of monetary easing among Poland’s new policy makers said “a few months” are needed before the conditions to cut interest rates can fall into place.

While all but two members of the 10-person rate-setting board have already been replaced, monetary policy will remain “in transition” until Governor Marek Belka’s term ends in June, Jerzy Zyzynski, 66, said in an interview in Warsaw after attending his first board meeting last week. Also giving him pause is the economic impact of a new program of family benefits and changes in bank-tax regulations, which the policy council will be able to assess in the next inflation projection due in July.

“In a few months, a new governor will take over and the council will be faced with all those new economic factors,“ Zyzynski said. “I still think a cut is desirable. I don’t think that passing a motion for a cut would be possible or would serve a purpose in the nearest months.”

By extending the timing of possible rate cuts beyond Belka’s term, Zyzynski will frustrate traders and many analysts who’ve bet on additional easing for months. After he became the last of the new members to join the Monetary Policy council, Goldman Sachs Group Inc. economists said Zyzynski “has expressed more dovish views than the rest of the new members, so his arrival may strengthen the dovish side of the MPC.”

Record Deflation

With borrowing costs on hold since March 2015, Poland’s annual deflation unexpectedly deepened to 0.9 percent in March and the central bank now predicts price declines will continue in the longest run since the mid-1950s. Eryk Lon, the only other central banker to indicate he’d consider lower rates, has made his backing for a cut contingent on a slowdown among Poland’s main trading partners and the risk of “persistent deflation.”

The zloty extended gains after Zyzynski’s comments and traded 0.4 percent stronger at 4.2817 against the euro as of 4:47 p.m. in Warsaw. Comments by other policy makers casting doubt on deeper easing are prompting derivatives traders to scale back their expectations for stimulus. Six-month forward-rate agreements, an indication of rate expectations, were 12 basis points below the Warsaw Interbank Offered Rate on Monday, near the lowest this year.

Wrong Priorities?

Even as Zyzynski calls for further monetary easing, he also offers a more sweeping vision of policy that highlights the limits of central bank tools in helping overhaul the Polish economy. While the regulator’s charter subordinates economic expansion to the goal of maintaining price stability, Zyzynski says a debate on its mandate is overdue.

“If it were up to me, I would seek to do it the other way around,” he said. “And this has nothing to do with the independence of the central bank. The bank must not be a tool in the hands of the government. It is, however, supposed to support economic growth.”

Gross domestic product expanded faster than 3 percent in 2014 and 2015, and the central bank now forecasts the economy will add 3.8 percent this year and next. That’s less than gains of “at least” 5 percent that Zyzynski says are needed for Poland to catch up with older members of the European Union.

‘More Important’

For the central bank, GDP growth should be “the most important part, more important than inflation, especially in the global environment of disinflation and sluggish economies,” he said.

Looking for a more effective way for the central bank to help the economy, Zyzynski says he’d be eager to start a debate on how it could become engaged in projects related to the new government’s development plan, as long as they are “rational and profitable.” That would support a program unveiled by Development Minister Mateusz Morawiecki, which is seeking to harness 1 trillion zloty ($267 billion) for investment in manufacturing and innovation to help the nation catch up with richer EU neighbors.

As an economics professor at Warsaw University, in his academic work Zyzynski has specialized in fiscal and monetary policy and the workings of the public sector. Until his appointment to the policy council last month, he spent the past five years as a lawmaker representing the Law & Justice party.

All eight new rate setters were appointed either by the party or its ally, President Andrzej Duda. Law & Justice raised concerns about the central bank’s independence with a pledge before the nomination process to pick policy makers who’ll favor more monetary easing to spur growth and allow Poland to reduce unemployment and boost wages.

Leading Contender

The president will also name a replacement for Belka, who said last month that his “probable” successor Adam Glapinski is likely to stick with the same policies. Glapinski, a member of the Monetary Policy Council for the past six years, has said that the central bank’s independence is “deep-rooted” and won’t buckle under political pressure.

Glapinski, would become the first internal pick to lead the Polish central bank in the country’s modern history. The 66-year-old economics professor, together with Jaroslaw Kaczynski, co-founded the Center Alliance, which in 2001 was transformed into Law & Justice. The party swept to power in 2015 with wins in presidential and parliamentary elections after eight years in the opposition.

Belka, who has two rate meetings left as the MPC’s chairman, “has a strong personality and seems to support steady rates,” Zyzynski said. Despite the changes on the policy board, the council has adopted a “unanimous stance, showing a clear intention to keep rates on hold.”

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