NBP governor Slawomir Skrzypek has drawn fire over his political allegiances. But the strength of the zloty is proving the bigger concern
The nationalist Law & Justice party (PiS) may have been defeated in the November polls, but it is still a force to be reckoned with – both in Polish politics and in the organs of the state.
In politics, a co-founder of the PiS, Lech Kaczynski, is also president of the country and can therefore wield the veto in parliament. And there are also his appointees. One of the most important is Slawomir Skrzypek, who is governor of the National Bank of Poland (NBP) and chairs the interest rate-setting Monetary Policy Council (MPC).
Skrzypek has drawn fire from many corners with claims that he was appointed simply to act as a loyal PiS crony.
Already, competition between the PiS and the ruling Civil Platform party (PO) has caused a stir among policy-makers, giving the impression that Poland’s control of inflation and implied euro convergence might be under threat.
Four members of the NBP’s management team, including deputy governor Krzysztof Rybinski, have resigned since Skrzypek was appointed little more than a year ago. But in an interview with Emerging Markets, Rybinski seeks to play down the risks to Poland’s monetary policy. “I’m convinced the MPC [Monetary Policy Council] are committed to bringing inflation to below 2.5%,” says Rybinski, who is now a partner at Ernst and Young in Warsaw.
In February, inflation rose to a three-year high of 4.2%, before falling to 4.1% in March. Retail sales, industrial output and wage growth statistics all show inflationary pressure is strong and continuing. “We are obliged to fulfil Maastricht Treaty criteria, and we’re already fulfilling most of them: there is nothing to worry about for investors or analysts,” Rybinski says.
He says it is a difficult time for the MPC, with rising global inflation and Poland’s relatively high exposure to food prices, which the council can do little about.
He says the financial community should not worry that Skrzypek has voted in a different way to the rest of the MPC. “There’s nothing new about a central bank governor being outvoted on the MPC – it happened to former governor Leszek Balcerowicz all the time.”
Despite coming from the PiS, a nationalist party far less market-oriented and more Eurosceptic than the PO, Skrzypek has sought to show the government’s reform programme is under threat.
He even publicly said in mid-April that the resignation of deputy finance minister Stanislaw Gomulka “is a risk for Poland’s euro convergence plan”.
In March, the MPC raised rates to 5.75%, the seventh rise in 12 months and its highest level in three years. At that time Skrzypek said inflation would peak at the turn of the second and third quarters before returning toward the central bank’s target range for 2009-10.
As expected, the rate remained unchanged in April on fears of further zloty appreciation, but analysts predict there will be a hike at least once more this year. According to an April 25 research note by Morgan Stanley, “March NBP minutes are also consistent with the notion that concerns about zloty gains are increasing.”
Ahead of the April decision to keep rates on hold, MPC member and a swing voter on the council, Jan Czekaj, said Polish growth was slowing and the pace of zloty appreciation was harmful to Polish exports.
“Interest rates must go up further,” Rybinski says. “The zloty appears relatively strong. If it gets much stronger it will start to hurt exports, but it is still fairly valued in some models.”
Some analysts say the PO’s slow progress in reforms is tactical: there is no point attempting to implement change if its rival has a good chance of stopping it. If the PO wins the presidency in 2010, it will have a far higher chance of reforms being passed.
In the meantime, the professional economists at the MPC are finding it easy to make rate decisions with or without the governor of the NBP. “In the future, if the right rate decision becomes less obvious and more controversial, there could be trouble,” says BHP’s Petru. “But as long as times are good in Poland, the trouble at the NBP is irrelevant.”—T.K.