Bloomberg News

Polish Central Bank Said to Sell Euros as Zloty Tumbles

November 24, 2011

(Updates with central bank comment in second paragraph, currency in third.)

Nov. 23 (Bloomberg) -- Poland’s central bank confirmed it sold euros for the first time in seven weeks as the zloty hit a two-month low on deteriorating economic-growth prospects in the euro area.

“The National Bank of Poland has sold today a certain amount of foreign currencies in exchange for the zloty,” it said in an e-mailed statement.

The currency was down 0.3 percent today at 4.4747 per euro at 2:35 p.m. in Warsaw. It peaked at 4.4416 as the central bank stepped in to the market this morning, before sliding to 4.4784 per euro, the weakest level since Sept. 23 and below the rate at which the central bank sold euros. Poland’s five-year government bond yield rose 11 basis points, or 0.1 percentage points, to 5.3227 percent, the highest level since July 4.

The zloty has lost 11 percent against the euro since the end of June, the third-worst performance among emerging-market currencies after Hungary’s forint and the South African rand, on concern growth in the European Union’s largest eastern economy will slow because of the euro zone’s debt crisis.

Central bank Governor Marek Belka said the weakening zloty is making it harder to curb inflation, according to comments on the bank’s website published today, before the currency sales.

The scope of today’s central bank transactions isn’t clear and more euro sales may occur when U.S. markets open, said Bartosz Pawlowski, head of fixed income and interest rate strategy for central and eastern Europe, Middle East and Africa at BNP Paribas in London.

Surprise Factor ‘Lost’

“There is a big chance that people just basically moved the bids away and there was not that much of an intervention, so I believe there might be another round still today,” Pawlowski said by phone. “The central bank has lost the element of surprise.”

The National Bank of Poland sold foreign currency on the market three times between Sept. 23 and Oct. 3, its first operations to support the zloty since the currency was floated in 2000, according to the central bank.

“I want to reiterate that the Polish central bank is not targeting any specific zloty exchange rate,” Central bank management board member Andrzej Raczko said on TVN CNBC television today, before the central bank’s currency sales.

Debt Implications

The government also stepped in to defend the zloty by selling euros and dollars over the past three months through the state-owned Bank Gospodarstwa Krajowego, according to Warsaw- based traders involved in the transactions.

The Finance Ministry has defended the exchange rate partly because depreciation increases the zloty value of its debt, with 29 percent denominated in foreign currencies. Public borrowing rose to 52.8 percent of gross domestic product in 2010 and an increase above 55 percent would trigger compulsory spending cuts and tax increases under public-finance laws.

The zloty weakened after reports today showed a decline in manufacturing output in the euro area, which takes in 54 percent of Poland’s exports.

“A weaker zloty makes it harder to curb inflation,” Belka said in comments on the bank’s website before this morning’s currency sales. “That is one of the main reasons we intervened on the currency market.”

Rafal Benecki, senior economist at ING Bank Slaski SA in Warsaw, said the central bank will be using “interventions and not interest rates to support the zloty.”

--With assistance by Jason Webb in London. Editors: Wojciech Moskwa, Thomas Mulier

To contact the reporters on this story: David McQuaid in Warsaw at dmcquaid1@bloomberg.net; Monika Rozlal in Warsaw at mrozlal@bloomberg.net

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


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