Zloty Weakens First Time in Three Days on Cyprus Bailout Concern

The zloty weakened for the first time in three days amid concern Cyprus’s bailout plan will set a precedent for losses on deposits in the euro region that consumes more than half of Poland’s exports.

The currency depreciated 0.2 percent to 4.1721 against the euro by 12:12 p.m. in Warsaw, after appreciating 0.6 percent in the previous two days.

Cyprus and its creditors agreed to shut Cyprus Popular Bank Pcl, the country’s second-largest lender, and imposed a tax on deposits that spared accounts below the insured limit of 100,000 euro. The eleventh-hour deal reached yesterday paved the way for 10 billion euros ($13 billion) in emergency loans to stave off the threat of default in the Mediterranean nation. Banks in Cyprus will reopen on March 28, Finance Minister Michael Sarris told BBC Radio today.

“Everyone is awaiting what will happen when Cypriot banks are open, whether people will run for their deposits or not,” Andrzej Krzeminski, head of foreign exchange at Bank BPH SA (BPH), said by phone. “There’s general uncertainty over how it will affect sentiment in financial markets, Poland included.”

The zloty’s trading volume is “significantly lower than in a normal week,” Krzeminski said, citing the closure of U.S., U.K. and German markets for Good Friday this week.

Poland’s central bank signaled this month a pause in its easing cycle after cutting interest rates by 150 basis points since November to a record 3.25 percent. Policy makers are battling to keep the European Union’s largest eastern economy from falling into its deepest slump in 12 years, with inflation at its lowest level since 2006.

Rate Cut

The bank may cut interest rates again “in several months” unless the economy starts to recover, policy maker Andrzej Bratkowski said in an interview with Radio PiN today, adding it’s “rather improbable” rates will be cut in April.

“The Monetary Policy Council’s decisions will to a large extent depend on economic activity in the coming months,” Bank Zachodni WBK SA (BZW) economists led by Maciej Reluga wrote in a note. If they are disappointments, “the likelihood of a rate cut in the middle of the year will rise,” the economists wrote.

The yield on 10-year government bonds rose four basis points, or 0.04 percentage point, to 3.916 percent, increasing for a second day.

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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