Polish Central Bank Governor’s Defense of Rate Cut Triggers More Zloty Losses

Piotr Skolimowski and Agnieszka Barteczko
·2 min read
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(Bloomberg) -- Polish central bank Governor Adam Glapinski struggled to convince investors this week’s surprisingly steep interest-rate increase was justified, deepening the selloff in the zloty and drawing criticism that he was doing the nationalist ruling party’s bidding before next month’s elections.

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“Contrary to what some media are saying, there is no underlying political decision here,” Glapinski said Thursday, denouncing criticism from economists and opposition parties as political posturing before Oct. 15 parliamentary elections.

As he spoke on Thursday, the zloty extended declines to drop as much as 1.4% against the euro to the weakest since April, leading losses across emerging markets. It’s lost 3% of its value in the past two sessions. Poland’s 10-year bond yields jumped.

Policy makers slashed the benchmark by three quarters of a percentage point Wednesday, blindsiding investors and triggering the zloty losses. Glapinski said the central bank would now take a wait-and-see approach toward future interest rate moves, and that this week’s cut had been based on economic fundamentals.

“Inflation is likely to be slightly above 8.5% for September,” Glapinski said. “The conditions I spoke of have been met - single digit inflation and a projection that unambiguously states that inflation will decline in the next quarters.”

The shock rate decision has risen to the top of the political agenda close to the tightly contested ballot. It also left investors guessing at the next move, with some economists questioning the central bank’s commitment to curbing inflation to the 2.5% target.

Earlier on Thursday, main opposition leader Donald Tusk slammed the rate cut as risky and said Glapinski is taking part in the pre-election campaign of the ruling Law & Justice Party, of which the governor is a close ally.

“There is no doubt that Glapinski took a decision which could make loan-holders happy and the scale is surprising ahead of the election,” Tusk told reporters in the central Polish village of Orzezyn. “Everybody knows this is a very risky step.”

Glapinski shot back at his news conference, arguing the decision was “overdue” and based on “a very good situation, objectively,” in the economy.

At the same time, he said economists at foreign-owned banks were biased for criticizing his decisions, adding that the cut would hurt the “rich” while benefiting 95% of Poles.

Glapinski said that the 2% drop in the zloty since the decision wouldn’t have any impact on inflation and expressed “hope” that the exchange rate would stabilize again.

“Extraordinary developments in Poland — central bank governor Glapinsky seems to be going all in to help the ruling party get elected,” Timothy Ash, senior strategist at RBC Bluebay Asset Management, said on X, formerly known as Twitter.

--With assistance from Wojciech Moskwa, Selcuk Gokoluk and Konrad Krasuski.

(Adds details, updates prices throughout)

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