The Polish currency, the Zloty, has strengthened on the first day of trading on currency markets opened following the death of the Central Bank Governor Slawomir Skrzypek in a plane crash in Smolensk, Russia.

Skrzypek intervened on April 9th in the currency market for the first time since 1998, buying euros to curb the zloty’s gains after a 6 percent appreciation this year, thereby helping to keep Poland's exports competitive and the economy strong.

Poland is the only country in Europe that has not suffered a recession, and that has actually notched up positive growth this year.

The zloty erased the decline of as much as 0.7 percent that Skrzypek's intervention brought, and traded 0.1 percent higher at 3.8658 per euro as of 11:05 a.m. in Warsaw, bringing this year’s strengthening of the Zloty to 6.2 percent, according to Bloomberg.

The temporary central bank governor, Piotr Wiesiolek, has given no indication that he intends to continue the policy of Skrzypek of intervening in the currency market if necessary to keep the Zloty competitive against the euro.

Wiesiolek is  a former fund manager for Deutsche Bank AG and JP Morgan, two of the banks that are profitting most from the weakening of European economies due to the destruction of manufacturing bases and export capacity caused by currencies being locked into high exchange rates, also via the euro mechanism, and due to gigantic government debt burdens.

Greece is currently facing default due to an inability to devalue its currency to regain competitiveness, and high debts caused by bank machinations, in part.

A default will allow banks to buy up Greek assets for cents on the euro while squeezing ever higher interest rate payments from the country.

The death of Skrzypek will also affect the Polish government's interest rate policy made by Monetary Policy Council, which has 10 members, including the governor, who presides over policy meetings and casts a tie-breaking vote.

Interest rate policy is a vital instrument for steering an economy to prosperity or disaster.

Bronislaw Komorowski, who assumed the duties of President Lech Kaczynski after the crash and is empowered to choose Skrzypek’s succesor, said yesterday that “we need quick decisions.”

The list of potential candidates to take over as central bank governor are headed by private bankers.

Prime Minister Donald Tusk’s senior economic adviser, Jan Krzysztof Bielecki, a former premier and ex-head of the country’s second-largest bank, Pekao SA, said Rafal Benecki, a senior economist at ING Bank Slaski in Warsaw have been mentioned as possible candidates.

Two reports from Bloomberg on the central bank governorship and the Zloty giving a corporate spin:

Poland Has No Reason to Rush Central Bank Governor Appointment

April 12, 2010, 7:26 AM EDT

By Dorota Bartyzel and Monika Rozlal

April 12 (Bloomberg) -- Poland has no reason to rush the appointment of a replacement for central bank Governor Slawomir Skrzypek, who died in the April 10 plane crash that also killed the nation’s president, said Bronislaw Komorowski, the parliamentary speaker who’s assumed presidential duties.

His comments contradicted a call for an immediate appointment to maintain continuity of monetary policy by a former central bank policy maker.

“Unless a new governor is nominated and confirmed by parliament, there won’t be any way to call the next rate meeting” scheduled for April 27-28, Dariusz Filar, an economic adviser to Prime Minister Donald Tusk, told TVN CNBC television today. “Choosing a new governor is vital to ensuring policy continuity in Poland.”

The central bank on April 9 intervened in the currency market for the first time since 1998, buying euros to curb the zloty’s gains after a 6 percent gain this year. Decisions on interest rates and currency policy are made by the Monetary Policy Council, which has 10 members, including the governor, who presides over policy meetings and casts a tie-breaking vote.

The bank had also signaled it was deciding when to start raising rates from a record low 3.5 percent. It left the benchmark seven-day reference rate unchanged on March 31, expecting inflation to slow to 1.4 percent by the third quarter, below its 2.5 percent target-range midpoint.

“Uncertainty should be out of the way by June 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. He expects the country to join the pre-euro Exchange Rate Mechanism, a prelude to adopting the euro, in 2011.

‘Realistic’

Poland abandoned its 2012 euro adoption target in July after it became clear it would miss the bloc’s fiscal targets. Tusk says 2015 is a “realistic” date.

Potential candidates for the governorship include Tusk’s senior economic adviser, Jan Krzysztof Bielecki, a former premier and ex-head of the country’s second-largest bank, Pekao SA, said Rafal Benecki, a senior economist at ING Bank Slaski in Warsaw. Also under consideration may be Andrzej Bratkowski, a former deputy governor who sits on the MPC; and Jerzy Pruski, also a previous deputy governor.

“The best thing would be to find someone right away to preserve the stability and credibility of the central bank,” Benecki said. “The most likely candidate is Bielecki, because he has political experience and support. Right behind is Bratkowski, who has the know-how to step right into the job without missing a beat.”

The governor’s duties are being handled by Deputy Governor Piotr Wiesiolek, 46, who joined the management board in March 2008. A former analyst and fund manager for Deutsche Bank AG and JP Morgan, he was hired at the central bank’s foreign operations department between 1992 and 1996, where he dealt with security portfolios management. Before becoming deputy governor, he was deputy chief executive officer of Bank Ochrony Srodowiska SA.

“Undoubtedly Wiesiolek is very competent so the markets shouldn’t be concerned about the continuity of the central bank’s operations,” said Urszula Krynska, an economist at Bank Millennium in Warsaw.

‘Extremely Delicate Issue’

Other candidates may be former policy makers Boguslaw Grabowski and Dariusz Filar and Finance Minister Jacek Rostowski, wrote Jana Krajcova, an analyst at Ceska Sporitelna, in an e-mailed comment.

The naming of a new governor “is an extremely delicate issue in the current circumstances,” said Monika Kurtek, an economist at Bank BPH. “I think the appointee will not be anyone closely related with the ruling Civic Platform. This would simply be politically incorrect,”

The MPC today began a meeting to elect a chairman, though it’s not clear whether he or she will lead all the coming meetings or just today’s, Anna Zielinska-Glebocka, a member of the MPC said by phone. “We are still in the process of clearing up this issue.”

Komorowski, who assumed the duties of President Lech Kaczynski after the crash and is empowered to choose Skrzypek’s succesor, said on television late yesterday that “we need quick decisions.”

Still, some economists and analysts said he may delay the appointment to avoid any appearance of usurping the deceased president’s legacy.

‘Tough Spot’

“Komorowski and Civic Platform are in a very tough spot,” said Radoslaw Markowski, a professor of politics at the Polish Academy of Sciences. “One wrong word or bad appointment and the public mood could swing against them.”

The central bank governor is appointed by the president and must be approved by a simple majority of lawmakers. As acting president, Komorowski, who is also the official presidential candidate of 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 erased earlier declines of as much as 0.7 percent, before trading 0.1 percent higher at 3.8658 per euro as of 11:05 a.m. in Warsaw, bringing this year’s advance to 6.2 percent. The WIG20 Index of shares climbed 0.4 percent, extending gains in 2010 to 7.4 percent. Bonds traded little changed with five-year securities yielding 5.16 percent, according to HSBC Holdings Plc prices.

--Editors: David McQuaid, Chris Kirkham

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

To contact the reporter on this story: Monika Rozlal in Warsaw at dbartyzel@bloomberg.net

To contact the editor responsible for this story: David McQuaid at dmcquaid1@bloomberg.net

Zloty Erases Loss Caused by Crash; Stocks Advance on Greece

April 12, 2010, 7:32 AM EDT

By Piotr Skolimowski and Pawel Kozlowski

April 12 (Bloomberg) -- The zloty recovered from losses after the weekend plane crash that killed Poland’s president and central bank chief, as Citigroup Inc. and RBC Capital said the tragedy won’t damage one of Europe’s strongest economies.

The zloty erased earlier loss of as much as 0.7 percent to trade 0.2 percent higher at 3.8642 per euro as of 1:13 p.m. in Warsaw, bringing this year’s advance to 6.2 percent. The WIG20 Index of shares climbed 0.5 percent, extending gains in 2010 to 7.5 percent. Bonds rose pushing the yield on five-year securities one basis point lower to 5.15 percent, according to HSBC Holdings Plc prices. The yield at today’s Treasury bill auction dropped as investor demand for the securities rose to the highest level since January.

Analysts say the rally will continue as growth accelerates in the only European Union economy to avoid a recession during the credit crisis and record state-asset sales help fund the budget deficit. President Lech Kaczynski, central bank Governor Slawomir Skrzypek and leaders of the opposition and miliatary were among 96 people who died en route to commemorate the Soviet massacre of Polish officers near Russia’s Katyn forest.

“This is a very sad event but I don’t think this is going to turn around the good economic policy story that Poland is,” said Luis Costa, an emerging-market strategist at Citigroup in London. “The beginning of trading will be volatile.”

The euro gained against the dollar and stocks rose across central and eastern Europe after governments offered Greece a bailout package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro.

Rescue Package

“The market isn’t panicking at all,” said Sebastien Barbe, head of emerging-market research at Credit Agricole CIB in Hong Kong. “The rescue package for Greece is very positive. Although Poland wasn’t the most fragile in terms of its fiscal balance, people have been concerned that there would be some contagion.”

The cost to protect against a default on Polish debt fell 4.5 basis points to 89.5, the lowest since March 18, according to CMA DataVision prices. Prices for credit-default swaps fall as perceptions of creditworthiness improve.

Prime Minister Donald Tusk called the April 10 crash near the city of Smolensk the most tragic event for Poland since wartime. Russian and Polish authorities are investigating whether bad weather, human error, a technical malfunction or other reasons caused the crash, according to Russian officials.

“I don’t think it alters the general picture of Poland,” Nigel Rendell, senior emerging-market strategist at RBC in London, said in a telephone interview. “The economy is one of the strongest within Europe.”

Rising Demand

The yield on 52-week Treasury bills fell to 3.839 percent at today’s auction, the lowest level since Feb. 1, as demand reached 4.43 billion zloty ($1.56 billion), the most since January. The Finance Ministry will also offer from 2 billion zloty to 3.5 billion zloty of 10-year bonds on April 14, in line with the previous plan, it said in a statement.

Polish gross domestic product will probably rise 3 percent this year, up from 1.7 percent growth in 2009, according to government estimates.

“The zloty remains, in our opinion, the most cyclically undervalued currency” in emerging Europe, the Middle East and Africa,” JPMorgan Chase & Co. economist Nora Szentivanyi wrote in a report today. It is “the one most likely to strengthen over the medium term, helped by a sustained growth rebound that we do not expect to be affected,” he wrote.

Ceremonial Role

Under the constitution, the speaker of the lower house of parliament, Bronislaw Komorowski, will assume the duties of the president, which are largely ceremonial. He’s required to set a date for a presidential election within two weeks and the vote must be held within 60 days. That brings the ballot forward from an election previously scheduled for the second half of 2010.

Along with assuming the role of president, Komorowski is also the candidate in presidential elections for Tusk’s Civic Platform party. Polls show Komorowski was poised to defeat Kaczynski in the ballot.

The political system concentrates power in the hands of the prime minister as head of government. The president may veto legislation and make some appointments, including generals, judges, ambassadors and the head of the central bank.

“The presidential role in Poland is not big while monetary policy decisions are made by a 10-member council, not by the governor himself,” Marek Juras, a central European strategist at UniCredit SpA in Warsaw, said in an phone interview yesterday.

‘Matter Can’t Wait’

Piotr Wiesiolek, a deputy central bank chief, has temporarily assumed the role of governor. Wiesiolek told PAP newswire on March 11 that the central bank is operationally ready to intervene on the market if necessary, a month before policy makers bought foreign exchange on April 9 to weaken the zloty in the first such intervention since 1998.

“The institutional setting is strong and there are no major political risks,” Shahin Vallee, a London-based emerging- markets currency strategist at BNP Paribas SA, wrote in an e- mailed note. “We would buy the zloty, bonds on any weakness related to this event.”

Appreciation Ended

Even after a two-day decline last week against the euro, the zloty is still up 27 percent from its five-year low on Feb. 17, 2009, the second-biggest increase among emerging-market currencies tracked by Bloomberg for the period after South Africa’s rand.

“The appreciation trend has ended for now,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt, said in a phone interview yesterday. “The risk for those who bet on further zloty appreciation is larger now, though mainly due to the intervention.”

Commerzbank last month raised its forecast for the zloty to strengthen to 3.75 per euro by year end, from 3.95 seen previously. RBC predicts an exchange rate of between 3.75 and 3.8 by yearend, Rendell said.

Prime Minister Tusk’s chief adviser, Michal Boni, said in televised comments there is no need for emergency measures to stabilize the economy, adding that he’s in constant contact with Wiesiolek and the authorities stand ready to act if needed.

PZU for Sale

The government’s target to raise $10 billion from state asset sales this year includes an offering of shares in PZU SA, Poland’s largest insurer, scheduled to start this week. The government and Eureko BV planned to begin taking orders for at least 5.5 billion zloty of PZU shares in Europe’s biggest initial public offering this year.

Poland is keeping to its plan for the share sale, Treasury Ministry’s spokesman Maciej Wewior said by phone from Warsaw today.

“While tragic, we do not think this ought to cause any concern for Polish assets,” Erik Nielsen, Goldman’s London- based chief European economist wrote in a report yesterday. Goldman’s forecast on Bloomberg has the zloty at 3.75 per euro by the end of the third quarter, from 3.87 on April 9.

--With assistance from Sandy Hendry in Hong Kong and Michael Patterson in London. Editors: Stephen Kirkland, Gavin Serkin

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net; Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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