Even Doves Turn Jittery as Lines Blur on Polish Central Bank

Updated on
  • Glapinski says he could become ‘very predatory’ dove if needed
  • Currency, derivatives show doubts about Poland’s rate guidance

The Polish central bank could yet waver on its commitment to keep interest rates stable.

While three of Poland’s biggest lenders said Governor Adam Glapinski last week delivered the most dovish briefing of his tenure, its message was still so nuanced that some in the market are having second thoughts. The zloty, after a brief decline on Wednesday, has settled down to eke out two days of gains against the euro. The Polish currency traded 0.2 percent weaker on Monday.

Despite raising the possibility for the first time that rates could remain on hold beyond this year and even into 2020, Glapinski went on to say that if needed, he might turn into a “very predatory” dove and noted there’re still three hawks on the 10-person Monetary Policy Council. Only last month, central banker Eugeniusz Gatnar said a preemptive hike may still be needed this year, a sentiment echoed later by fellow MPC member Lukasz Hardt. For Societe Generale SA, changes in rhetoric won’t take long to materialize.

“The council may start to consider changing its communication in the second half of the year if inflation is above target,” said Jaroslaw Janecki, the chief economist for Poland at SocGen in Warsaw. The next set of staff forecasts in July “may highlight growing inflationary risks, but the council will probably still wait for further confirmation of this trend. We think that November’s estimates may prompt rate hikes.”

The latest projection, which was published in full on Monday, showed inflation above the central bank’s 2.5 percent mid-point target in 2019 and 2020. This year’s outlook for prices was cut to 2.1 percent from the 2.3 percent seen last November. It was sufficient for Glapinski to say that no rate change by the National Bank of Poland may be warranted any time soon.

‘Inclined to Ignore’

“We are inclined to ignore the NBP’s dovish shift as it is too conflicting with fundamentals,” JPMorgan Chase & Co. analysts including Anezka Christovova said in a note. “The central bank essentially set itself up to be surprised to the upside, in our view. Finally, the balance of payments and valuation arguments continue to hold.”

A longer horizon for Poland’s policy pause stole the headlines last week and sent bets on tightening in the derivatives market to the least since September. But the governor layered his guidance with enough restraint to give the MPC plenty of room for maneuver. Conceding he spoke only “reluctantly” about any time span beyond this year, Glapinski even said that “one couldn’t talk rationally” about 2020 at all.

The governor wasn’t trying to have it both ways. Instead, he’s looking to craft a policy that takes flexibility to an extreme.

“On behalf of the whole council, I can say we’re not hostages of any dogmatic theory,” Glapinski said. “We will not hesitate to do what’s needed even if that’s against earlier statements, as new factors may appear.”

‘Enough Space’

Price growth in January decelerated to a five-month low of 1.9 percent from a year earlier and probably slowed further in February. Over the past three years, the benchmark rate has stayed at 1.5 percent, above the level among Poland’s peers in eastern Europe such as the Czech Republic and Hungary.

For Glapinski, that’s “leaving us enough space so we don’t need to suddenly increase these days.”

Most economists agree with the central bank that inflation isn’t at risk of overshooting the target through 2020. What’s at issue, however, is the extent to which Poland’s unprecedentedly low unemployment can fuel wage gains that feed into prices. SocGen’s Janecki says it’s only a matter of time, “with the labor market potentially decisive in bringing about price increases.”

If that’s the case, Glapinski and the rest of the MPC probably avoided painting themselves into the corner. Speaking alongside the governor, central banker Grazyna Ancyparowicz stressed they were “not talking about ruling out tightening.”

The message, in the end, was that the central bank can easily change its spots if it has to.

“I know you see me as a dove, but that is because the situation calls for being a dove,” Glapinski said. “I can reassure you that if the need comes, I will be very predatory, and I will not hesitate to raise rates.”

(A previous version of this story was corrected to show that rates are higher in Poland than in Czech Republic and Hungary.)

— With assistance by Adrian Krajewski

(Updates with analyst comment in sixth paragraph.)
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