Zloty Forecast Cut at SocGen as Intervention May Curb Currency's Advance

Societe General SA reduced its prediction for the zloty’s appreciation this year as Poland may seek to slow the currency’s gains to bolster the economy, the French bank said today.

The zloty will probably reach 4 per euro in June, down from an earlier projection of 3.8, Gaelle Blanchard, an emerging- market strategist at the bank, said by phone from London. The currency will strengthen to 3.9 in September and 3.8 in December, compared with 3.7 predicted for both months previously, she said.

“Polish authorities may not be comfortable to allow for rapid zloty appreciation even if the current global uncertainties disappear,” Blanchard said. “They want to wait until domestic demand has really recovered and preserve export competitiveness.”

The zloty weakened less than 0.1 percent to 4.0732 per euro as of 3:55 p.m. in Warsaw, snapping two days of gains. The currency declined 3.6 percent this month, the worst performance among 25 emerging-market currencies tracked by Bloomberg.

Concern that the debt crisis among European Union countries will slow economic recovery sent the zloty to its weakest level since November this month. The EU accounts for almost 80 percent of Poland’s sales abroad, according to the nation’s statistics office.

Limiting Gains, Losses

Poland has bought and sold foreign currency as the zloty rose to a 16-month high of 3.8234 per euro on April 7, before depreciating as much as 10 percent to six-month low of 4.2475 on May 7. The central bank said it sold the zloty on April 9 to weaken the currency for the first time since 1998, while the ministry exchanged “a large amount” of foreign currency at the central bank this month, Deputy Finance Minister Dominik Radziwill said on May 12.

“The potentially negative impact of sharp currency moves on the economic recovery and on the domestic financial sector raises the risk of interventions in the coming weeks,” Societe Generale said in an e-mailed note to clients today. The zloty “is thus likely to remain within the authorities’ comfort range of 3.80-4.20” per euro “for some time,” it said.

Investors’ expectation for zloty’s fluctuations against the euro has risen to the highest level since July 2009 this month. The implied volatility for at-the-money options expiring in three months, a measure of expected price swings and a key gauge of options prices, rose to 14.86 percent last week before retreating to 12.75 percent today.

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

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