Inside the Power Struggle Helping Keep Polish Rates Near Zero

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A normally subdued corner of Poland’s central bank could hold the key to rolling back pandemic-era stimulus in the European Union’s biggest non-euro-area economy.

While Hungary and the Czech Republic raise interest rates from near zero to tackle resurgent inflation, Poland has stood pat, with Governor Adam Glapinski insisting another crisis-fighting tool -- quantitative easing -- be wound down first.

That’s stoking tensions inside the bank, since any decision to halt the open-ended QE program would have to come from the bank’s management board, rather than the rate-setting Monetary Policy Council.

The board, which handles day-to-day operations and rarely features in major strategy shifts, increasingly appears to be wielding outsize sway in the debate on interest rates, according to MPC member Eugeniusz Gatnar.

“It looks as though the Council is somehow limited in its actions by the need to wait for the management board’s decisions,” Gatnar, one of three MPC members who unsuccessfully sought to increase rates in June, said in an interview.

“The majority on the Council rejects motions to raise rates, arguing, among other things, that this can’t happen as long as bond purchases continue,” he said.

Poland’s Top Hawk Urges End to Central Bank’s Crisis Toolkit

The make-up of the eight-person management board, which according to the central bank’s press office meets every week, is more political than the 10-strong MPC. Rather than just seasoned economists, it includes a former senior official from the ruling Law & Justice party and an ex-military intelligence officer.

At the same time, it’s becoming more vocal. First deputy head Marta Kightley told lawmakers this month that raising interest rates right now to rapidly quash inflation would be risky -- remarks that Gatnar called “highly unfortunate,” being outside the scope of her mandate.

Glapinski, the only person who sits on both the MPC and the management board and who’s seeking a second term as governor next year, said the two bodies were cooperating smoothly and that “the whole mechanism is working as it should.”

The central bank press office declined to comment on relations between the two panels.

Another MPC member, Kamil Zubelewicz, agrees with Glapinski that there’s “no formal conflict” and that it’s “wise” to stop QE before lifting rates. But he also says the MPC is independent and doesn’t need to wait for management board decisions.

“It’s clear the MPC decides on rates and the management on QE,” Zubelewicz told Bloomberg.

The case for a hike, meanwhile, remains strong as Polish inflation hit a decade high of 4.7% in May and is projected by the central bank to stay above policy makers’ 1.5%-3.5% tolerance range until next year. Glapinski and his allies argue they don’t want to rush the decision until the economy has recovered and the threat from Covid-19’s delta variant recedes.

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