April 13 (Bloomberg) -- Poland’s next central bank governor must stick to a policy of curbing gains in the European Union’s best performing currency this year and raising interest rates to contain inflation, Stone Harbor and TCW Group Inc. said.
“We have to see who gets nominated, but at this period we’re neutral, we’re not trading at all on our Polish position,” said Pablo Cisilino, who manages a $12.5 billion emerging-markets, fixed-income portfolio for Stone Harbor Investment Partners in New York. “We expect policy continuity.”
Bank governor Slawomir Skrzypek died in an April 10 plane crash, which also killed the president, and his successor has yet to be named. The tragedy occurred a day after the central bank started selling zloty in a bid to contain this year’s 6 percent appreciation against the euro, the bank’s first intervention in 12 years. The currency’s gains are hurting exporters in the biggest of the EU’s eastern members and the only EU economy to have avoided a contraction during the credit crisis.
The zloty is rising “too far and too fast” for the bank to ignore the issue and “there’s no reason to believe they won’t come back into the market again next week or the week after,” said Blaise Antin, managing director at TCW Group Inc. in Los Angeles, who helps oversee $115 billion, including $4 billion in emerging market assets, in an interview yesterday.
‘Out of the Way’
Before Skrzypek’s death, the central bank had signaled it was deciding when to start raising interest rates from a record low 3.5 percent. The bank has cut the benchmark in six steps from 6 percent over the past year and a half.
“Uncertainty should be out of the way by June,” after a permanent governor is appointed, “and we stick for now with our call of three rate hikes from July, but with risks to the downside given prospects of further intervention,” said Peter Attard Montalto, an emerging markets economist at Nomura International Plc, in a note.
The bank will raise the benchmark interest rate to 4 percent by year-end, according to the median forecast of 11 economists surveyed by Bloomberg.
Inflation slowed to 2.6 percent in March from 2.9 percent the previous month. The bank estimates price growth may slow to 1.4 percent by the third quarter, below its 2.5 percent target, though accelerating economic growth may push up consumer prices by year- end. Gross domestic product will rise 3 percent in 2010 after growing 1.7 percent last year, the government estimates.
Attard Montalto expects the country to join the Exchange Rate Mechanism, a prelude to adopting the euro, in 2011.
Appointment
The central bank governor is appointed by the president and must be approved by a simple majority of lawmakers. As acting president, Bronislaw Komorowski, who is also the official presidential candidate of Prime Minister Donald Tusk’s ruling Civic Platform party, is entitled to name a candidate without waiting for presidential elections, said Piotr Winczorek, a professor of constitutional law at Warsaw University.
The zloty lost as much as 0.7 percent against the euro today before recovering to trade at 3.8607 at 5:13 p.m. in Warsaw.
Investors have pared bets on rate increases, with forward-rate agreements used to speculate on borrowing costs nine months from now trading 33 basis points above the current three-month Warsaw interbank offered rate. That compares with 71 basis points on March 5, according to data compiled by Bloomberg.
‘More Active’
“The next few days will show how lasting the impact of the central bank action is,” said Piotr Bielski, a Warsaw-based economist at Bank Zachodni WBK, a unit of Allied Irish Banks Plc. “Investors will now have to be aware that Poland’s exchange rate policy is becoming more active, which should help to ease appreciation pressure on the zloty.”
Poland’s central bank appointed Skrzypek’s deputy Piotr Wiesiolek as acting governor after the crash, in Smolensk, western Russia, killed all 96 passengers, including President Lech Kaczynski, on route to commemorate the 70th anniversary of the massacre of thousands of Polish officers by Soviet forces at the Katyn forest.
‘Realistic’
Skrzypek, who like Kaczynski was a euro-skeptic, was appointed by the president in 2007 for a six-year term.
Poland abandoned its 2012 euro adoption target last July after it became clear it would miss the bloc’s fiscal targets. Pro-euro Tusk now says 2015 is a “realistic” date.
Preston Keat, London-based research director of Eurasia Group, a political risk consulting company, said tension between Skrzypek and the government over Poland’s euro aspirations and central-bank accounting had made investors jumpy and prone to “overreact.”
That attitude may now change, even if policy remains broadly similar, said Michael Ganske, head of emerging-markets research at Commerzbank AG in London.
“There will be stability, especially because the authorities understand that market participants are nervous and in this environment you need continuity,” Ganske said. “There is no way there’s going to a be a major political, structural change after this accident. It’s about keeping stable governance, stable institutions like the central bank and economic policy. It’s more a psychological phenomenon than something that forces major changes in policy.”
--With assistance from Dorota Bartyzel in Warsaw and Agnes Lovasz in London. Editors: Tasneem Brogger, Chris Kirkham.
Source: businessweek.com/
