Zloty Weakens, Yields Fall Ahead of Polish Inflation Data

The zloty weakened and yields on Poland’s two-year government bonds fell for a third day before the release of inflation data at 2 p.m. in Warsaw.

Consumer prices are expected to rise 1.5 percent in February, matching the lowest level since August 2007 and compared with a 1.7 percent advance in January, according to the median estimate of 36 economists in a Bloomberg survey. Weaker inflation is increasing pressure on the central bank to continue lowering interest rates after this month’s 50 basis-point reduction to a record low of 3.25 percent.

“A further significant decline in inflation will be supportive for market participants who believe the current rate- cutting cycle has not come to an end yet,” Bank Pekao SA economists, led by Marcin Mrowiec, wrote in a note today.

The zloty declined 0.3 percent to 4.1493 against the euro at 1:15 p.m. in Warsaw, the steepest depreciation among more than 20 emerging-market currencies tracked by Bloomberg after the South Korean won. Yields on two-year bonds fell one basis point, or 0.01 percentage point, to 3.32 percent, the lowest since Jan. 29, according to data compiled by Bloomberg.

Polish central bank Governor Marek Belka and fellow policy maker Elzbieta Chojna-Duch said yesterday that further interest- rate cuts are still possible if economic growth and inflation weaken more than expected by the Narodowy Bank Polski.

Nine-month forward rate agreements, derivatives used to speculate on borrowing costs, fell to 27 basis points below the Warsaw interbank offered rate today, showing trader expectations for a quarter-point rate reduction by the end of the year.

“You can see that the market still expects another rate cut after some time,” deputy Finance Minister Wojciech Kowalczyk told reporters in Warsaw late yesterday.

To contact the reporter on this story: Maciej Onoszko in Warsaw at monoszko@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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