April 11, 2010 / 3:35 PM / 10 years ago

Polish markets to stabilize after plane disaster

WARSAW (Reuters) - Polish markets are expected to stabilize quickly after early jitters following the deaths of the country’s president and central bank governor, with currency and interest rate policy unlikely to show any immediate change.

Poland’s economic stewardship is mainly in the hands of Prime Minister Donald Tusk and his cabinet, who have maintained growth during the global credit crisis. President Lech Kaczynski played only a secondary, mainly ceremonial role.

Central bank governor Slawomir Skrzypek, also killed by Saturday’s plane crash in Russia, was seen as the driving force behind last Friday’s currency market intervention to halt strengthening of the zloty.

His replacement could eventually modify that policy, but the new central bank chief may not be chosen for some weeks, during which time current policy should continue. Interest rate policy, which has been broadly supported by the entire 10-member Monetary Policy Council, looks set to stay unchanged.

So while the zloty may weaken slightly when markets reopen on Monday, perhaps to its lows late last month of around 3.90 against the euro, and government bonds could be sold modestly, the markets are not expected to establish new trends.

“The financial markets look at this from a longer perspective, so even with a short-term discounting of this tragedy, I don’t see a long-term impact on the economy,” said former central bank official Dariusz Filar.

Marek Juras, head of equity research at UniCredit CAIB in Warsaw, said: “The stock market should be the least affected, while we could see some more activity initially in the zloty and the bond markets.”

The Polish stock market has been in a strong uptrend for the past two months, hitting a 21-month high last week, because of expectations for an economic recovery.


The central bank’s intervention against the zloty on Friday was the first since Poland introduced a free float for the currency in 2000.

Tusk’s government backed the intervention, fearing a strong zloty could stall the economic recovery, but it might conceivably end up choosing a new central bank governor who is less willing to intervene.

“Until the new governor is chosen, the intervention policy will be continued by the central bank management,” said Jakub Borowski, chief economist at Invest-Bank. “But the new governor may oppose it, so some investors may expect future zloty strengthening.”

Also, Skrzypek was reluctant to set a firm target for Poland to adopt the euro; his successor may be more euro-friendly.

But it remains unclear when Poland’s Acting President Bronislaw Komorowski, a political ally of Tusk, will appoint Skrzypek’s successor, because there is uncertainty over the extent of his authority before elections in June.

Piotr Wiesiolek, Skrzypek’s top deputy, will serve as acting central bank governor until the appointment. Analysts are floating several potential candidates: former central bank official Boguslaw Grabowski, former central bank deputy governor Jerzy Pruski, or even Finance Minister Jacek Rostowski.

In any case, there is no reason to expect a change of interest rate policy. Skrzypek was once seen as a leading dove on the central bank’s rate-setting body, but in recent months he had moderated his views and had spoken of raising the key rate off its all-time low of 3.5 percent.

“The path for interest rates shouldn’t change because recent comments by Skrzypek showed that he stopped being a proponent of loose monetary policy, and it’s difficult to imagine that a new head of the central bank would have a more dovish approach,” said Borowski.


In the long term, the replacement of Skrzypek is likely to ease a tense relationship between the central bank and the government, and between the central bank governor and other members of the Monetary Policy Council. This could be moderately positive for all the financial markets.

Most of the council were appointed by Poland’s center-right government earlier this year. Skrzypek by contrast was appointed in 2007 by Kaczynski, a founder of main opposition party Law and Justice.

In particular, Skrzypek’s replacement may end a conflict over the government’s demand that the central bank hand over as much as 8 billion zlotys ($2.8 billion) in last year’s earnings to the state coffers to help cover the budget deficit.

“This completely changes the dynamics between the bank and the government in the dispute over what to do with the central bank’s profits,” said an emerging markets analyst at a foreign institution, who asked not to be named.

Skrzypek had clashed with the government and members of the council over reclassifying the bank’s currency reserves to beef up its earnings.

Editing by Andrew Torchia

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