Will Poland's New Central Bank Chief Fall Back on Old Alliances?

  • President's candidate Glapinski faces pressure to stoke growth
  • Economist is long-time friend of ruling party leader Kaczynski

Poland’s nominee for central bank governor comes recommended by his predecessor and has plenty of job experience. Yet it may be Adam Glapinski’s ability to resist the pull of older allegiances to friends at the very top of politics that sets the tone for monetary policy.

Glapinski, 66, a member of the Monetary Policy Council for the last six years, was named by President Andrzej Duda last Friday to head the central bank until 2022. While his predecessor Marek Belka said the pick represented “continuation” in policy, it’s Glapinski’s close ties with Law & Justice leader Jaroslaw Kaczynski and other senior figures in the ruling party that’s put some investors on alert.

“Markets are probably less worried about Law & Justice than they should be,” said Paul McNamara, a London-based money manager at GAM UK Ltd. “There’s a possibility that Glapinski will be asked to do unconventional things.”

The selection is what passes for compromise in a nation suffering the worst convulsion of political upheaval since the fall of communism more than a quarter century ago. The choice also reflects efforts to restore a measure of calm to Polish markets as the country braces for a credit review by Moody’s Investors Service on Friday after an unexpected downgrade by S&P Global Markets in January.

Kaczynski, Belka

While Glapinski has spoken out in defense of the central bank’s independence, saying it’s “deep-rooted” and won’t buckle under political pressure, that will be put to a test if old friends come calling.

The nominee has worked closely with Kaczynski, the most-powerful man in Polish politics. He was one of a handful of people who co-founded Kaczynski’s Center Alliance party, which in 2001 transformed into Law & Justice.

At the same time, he enjoys the support of Belka, the only Pole to hold all three posts of central bank governor, prime minister and finance minister. Belka endorsed Glapinski after the announcement last week, saying the presidential pick was a “good choice.”

A parliamentary vote on the nomination looks to be a formality given Law & Justice’s control of the legislature.

More ‘Cooperation’

Law & Justice officials have called for more “cooperation” with the central bank to speed up the economy. Deputy Prime Minister Mateusz Morawiecki last week spoke of giving the monetary authority “more up-to-date” policy tools.

The zloty extended a week-long losing streak as Duda announced his nominee. It gained as much as 0.6 percent and traded at 4.4162 against the euro as of 3:37 p.m. in Warsaw on Monday, the first increase in six days. Six-month forward-rate agreements, or derivatives forecasting the level of future interest rates, were 19 basis points below the Warsaw Interbank Offered Rate on Monday, indicating traders are expecting less than a quarter-point cut over the period, according to data compiled by Bloomberg.

While McNamara said investors were still treating talk of quantitative easing-style policies in Poland as “just noise,” Jakub Borowski, the chief economist at Credit Agricole SA in Warsaw, expects Glapinski to push through an interest-rate cut as soon as in July, when he chairs his first policy meeting. The National Bank of Poland has been on hold since March 2015.

“Glapinski has appeared in his comments rather unwilling to ease monetary policy at a time of moderately fast economic growth,” Borowski said. “However, once he becomes NBP governor, he will turn more dovish.”

Central bank records show Glapinski voted against seven of the 10 interest rate cuts since 2012. In that period, the 10-member policy panel reduced its main rate by 325 basis points to 1.5 percent.

Longer Pause

“As long as growth in the economy remains robust, we do not expect the NBP to lower rates,” Kevin Daly, an economist at Goldman Sachs Group Inc. in London, said in a note.

Deflation that started in July 2014 won’t ebb until the third quarter, according to the central bank. Helped by a program of child benefits, Polish economic growth is set to accelerate to 3.8 percent this year and increase at the same pace in 2017, the central bank’s projections show.

Given the government’s reliance on accelerating the $545 billion economy to fund its spending promises and stay within budget covenants, politicians will push the central bank to cut borrowing costs or roll out “special liquidity measures to boost lending activity, should the new NBP president be willing to respond to pressure from Law & Justice,” said Raffaella Tenconi, a London-based economist at Wood & Co.

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