The central bank governors of Poland and Hungary are reportedly caught up in disputes with opponents over their rate-setting policy. In Poland, governor Adam Glapinski stands under scrutiny for having tried to boost the economy with rate cuts to help his allies in the late governing party secure a new term in last month’s elections.

The rows come against a backdrop of regional inflation that remains markedly higher than that in Western Europe, driven up by structural factors like very tight labor markets but also repeated patterns of pre-election stimulus in recent years.

The election victory of the pro-EU coalition has even sparked a rally in Polish assets. Investors and credit rating agencies are monitoring closely the pressure on local central bankers given that inflation is still way over the target and unlikely to get back on track till late 2025.

Investor worries about central bank independence add to long-standing criticisms about the rule of law in Poland and Hungary, which have seen billions of euros of funds suspended by the EU due to its concerns about a backsliding of democratic standards.

The incoming Polish government cites Glapinski’s move to cut interest rates by a combined 100 bps ahead of the election but then keep them on hold after the vote as evidence he was tailoring monetary policy to the needs of his government allies. It is currently building a legal case that could see the governor being put before the State Tribunal.

Glapinski has repeatedly denied those allegations. In response to a request to his office for comment, an NBP spokesman said officials had acted within legal mandates at all times and that moves to oust Glapinski could hit Polish assets and the institution’s independence.

Polish five-year bonds carried a 282 bps spread over German Bunds. How those premia evolve will depend partly on how politics are perceived by investors to influence the central banks in the months to come.