Zloty Advances to 4-Week High on Polish Rate Bets, IMF Backing

The zloty gained to its strongest in four weeks after the Polish central bank signaled it may raise borrowing costs and the Finance Ministry said the International Monetary Fund will extend a credit facility for the country.

The zloty advanced 0.6 percent to 3.9623 per euro at 5 p.m. in Warsaw, its strongest intraday level since Nov. 25. It extended its gain so far in December to 1.5 percent, heading for its best month since July. The currency is still 3.4 percent weaker compared with this year’s high of 3.8383 in April.

A deterioration in the risk perception in emerging Europe resulting from the euro area’s debt crisis has weakened the zloty and “argues in favor of increasing interest rates,” Marek Belka, the central bank governor, said yesterday after the Monetary Policy Council left the benchmark interest rate at a record-low 3.5 percent for an 18th month.

“The MPC has moved much closer to raising rates,” Daniel Hewitt, senior emerging-market economist at Barclays Capital, wrote in a report today. Zloty weakness and signs of faster inflation may “lead to a rate hike in the first quarter of 2011, possibly as early as the January MPC meeting,” he wrote.

The zloty extended its gains today after the ministry said the IMF has “informally” approved Poland’s request to extend its Flexible Credit Line and increase the limit to $29 billion. The country doesn’t plan to use the facility, the ministry said in an e-mailed statement.

The zloty has gained 3.6 percent so far this year versus the euro. Against the dollar, the Polish currency has lost 5.6 percent in the same period.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

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

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