Inside the Power Struggle Helps Keep Polish Tariffs Near Zero

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An otherwise moderate corner of Poland’s central bank could hold the key to rolling back pandemic-era stimulus in the European Union’s largest economy outside the euro area.

As Hungary and the Czech Republic raise interest rates from near zero to tackle resurgent inflation, Poland has held out, with Governor Adam Glapinski urging that another crisis-fighting tool – quantitative easing – be phased out first.

This is fueling tensions within the bank, as any decision to end the open-ended QE program should come from the bank’s board of directors, not the rate-setting Monetary Policy Council.

According to MPC member Eugeniusz Gatnar, the board of directors, which runs the day-to-day business and is rarely involved in major strategic shifts, appears to be increasingly exerting undue influence in the interest rate debate.

“It appears that the Council is somehow being limited in its actions by the need to wait for the decisions of the board of directors,” said Gatnar, one of three MPC members who unsuccessfully tried to replace the board in June. to raise rates, in an interview.

“The majority in the Council rejects motions to raise interest rates, arguing, among other things, that this cannot happen as long as bond purchases continue,” he said.

The composition of the eight-member board, which meets weekly, according to the central bank’s press service, is more political than the ten-member MPC. Not just seasoned economists, but also a former senior official of the ruling Law & Justice party and an ex-military intelligence officer.

At the same time it is getting louder. First deputy chief Marta Kightley told lawmakers this month that it would be risky to raise interest rates now to quell inflation quickly.

Glapinski, the only person on both the MPC and the board of directors who wants a second term as governor next year, said the two agencies are working smoothly and that “the whole mechanism is working as it should”.

The central bank’s press service declined to comment on relations between the two panels.

Another MPC member, Kamil Zubelewicz, agrees with Glapinski that there is “no formal conflict” and that it is “wise” to stop QE before raising tariffs. But he also says that the MPC is independent and does not have to wait for board decisions.

“Obviously, the MPC decides on rates and management on QE,” Zubelewicz told Bloomberg.

The arguments for an increase, meanwhile, remain strong, as Polish inflation reached a 10-year high of 4.7% in May and, according to the central bank’s projections, is above the tolerance margin of 1.5%-3.5 until next year. % of policy makers will remain. Glapinski and his allies say they don’t want to rush the decision until the economy recovers and the threat from the delta variant of Covid-19 subsides.

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