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Zloty Slides to 6-Week as Low Slowdown Signs Boost Rate Cut Bets

The zloty retreated to a six-week low with economists from Citigroup Inc. to ING Groep NV expecting the Polish central bank to signal readiness to cut interest rates today as the debt crisis saps economic growth.

The zloty slid 0.4 percent to 4.2112 per euro, the weakest level since July 25, as of 11:24 a.m. in Warsaw. It declined 1 percent so far in September for the second-steepest loss among more than 170 currencies tracked by Bloomberg.

The Polish central bank, the only one in the European Union to raise borrowing costs this year, will “significantly tone down its statement” and remove references to the “restrictive bias of the monetary authorities” following today’s meeting, Piotr Kalisz, chief economist at Citigroup said in an e-mailed note today. He is among the 27 of 28 economists surveyed by Bloomberg who expect that the main interest rate will stay at 4.75 percent. Policy makers may reduce rates in October, according to ING and Citigroup.

“The statement today will de facto pre-announce the rate- cutting cycle,” Janusz Dancewicz, chief economist at DZ Bank Polska SA in Warsaw, wrote in an e-mailed comment. “An unexpected rate cut today could weaken the zloty even further.”

Investors in interest rate derivatives have increased their bets that the borrowing costs will fall this year after an Aug. 30 report showed economic expansion slowed to the weakest pace in 11 quarters in the three months to June 30. Polish manufacturing declined in August as output of goods slowed the most in more than three years, HSBC Holdings Plc said this week.

“We are expecting a change in the policy bias and the rhetorics to suggest a rate cut in October,” Rafal Benecki and Grzegorz Ogonek, economists at ING in Warsaw wrote in an e-mailed report today. “A cut today would be taken as a signal of panic and significant worsening in economic prospects.”

‘Overly Aggressive’

Three-month forward-rate agreements are trading 47 basis points below the Warsaw Interbank Offered Rate today compared with 30 basis points a month ago, according to data compiled by Bloomberg.

“While we acknowledge that the central bank is slowly gearing itself up for a rate cut, we believe that this pricing is overly aggressive,” Guillaume Salomon, a London-based strategist, and Jaroslaw Janecki, an economist in Warsaw at Societe Generale, SA wrote in an e-mailed note to clients today.

They recommend investors pay fixed rate on three-month forward rate agreements in anticipation the contracts will rise to 4.85 percent from 4.5 percent today.

The central bank will announce its decision in early afternoon, followed by a 4 p.m. statement and news conference.

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

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

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