Hawks on Polish MPC look to rally troops as isolation builds

By bne IntelliNews September 25, 2012

Tim Gosling in Prague -

Hawks on Poland's Monetary Policy Council rallied on September 24 to ensure the National Bank of Poland will keep interest rates unchanged after news emerged that one of their number will miss the October meeting due to health issues.

Council member Andrzej Kazmierczak confirmed to reporters on Monday, September 24 that colleague Zyta Gilowska is in the hospital for surgery and won't attend the council's monthly interest-rate decision meeting in early October. "She won't be there, she's in the hospital undergoing surgery," Kazmierczak told reporters on the sidelines of a public debate on economic policy, according to Dow Jones.

Meanwhile, at the same meeting, council member Adam Glapinski told the newswire that inflation remains too high to allow a cut from the current 4.75% rate. "Right now we are dealing with high inflation," Glapinski said. "In my view, CPI is too high to cut rates."

The hawks on the council are clearly rattled by building expectation that the NBP will move to reverse its surprising hike in May. Poland is the only central bank in the EU to raise rates this year, with the monetary policy council stressing the need to fight sticky inflation, and also eyeing the vulnerability of the zloty and consequent problems that weakening would bring for Polish consumers saddled with foreign-currency mortgages.

However, with economic growth slowing, the move was sharply criticized by the market and the government. While expectations of a cut at the September meeting persisted, they were not high; previously hawkish NBP Governor Marek Belka strongly suggested at the accompanying press conference that with inflation having slowed - CPI dropped to 3.8% in August, although remains above the 2.5% target - the NBP is poised to ease policy imminently.

Bets are rising that the first cut will come in October, and some analysts say they are anticipating as much as 100-basis-point of easing by the end of the first quarter of 2013. Lowered core inflation to 2.1% in August offered just the latest push for the doves. "This is another piece of data increasing market expectations for a rate cut which we believe will come by November at the latest," write analysts at Erste Bank.

That building expectation has the hawks on the MPC rallying. Kazmierczak and Gilowska are considered close colleagues on the council, both allied with the conservative Law and Justice opposition party. Asked whether Gilowska's absence would affect the result of the vote on Poland's benchmark rate, Kazmierczak said: "Hard to say, it may or may not."

While he's considered a hawk alongside Gilowska, Kazmierczak declined to say whether he would vote for a rate cut at the next meeting. Glapinski was far more effusive about the effect of Gilowska's ill health on the balance of opinion at the upcoming meeting, illustrating the fact that the hawks look to be increasingly isolated. "There'll be one vote missing" at next month's rate meeting, Glapinski said according to Bloomberg. "I won't deny that it's a very important vote."

Meanwhile, Piotr Kalisz at Citigroup suggests the hawks could be in for a more strategic loss than just the vote at October's meeting. "This would be [Gilowska's] third consecutive absence from an MPC sitting and - although a rate cut in October is not certain - her absence somewhat increases the chances of such an outcome. According to the central bank law, an MPC member can be removed from the office if his or her health condition permanently hinders their ability to perform duties. It is uncertain whether Gilowska's repeated absence fulfills this condition, but if is the case, her replacement would be appointed by President Komorowski and we suppose this could tilt the balance of views towards more dovish MPC."

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