Zloty Retreats, Bonds End Five-Day Rally as Rate Council Meets

The zloty weakened for the first time in three days and bonds pared gains from a rally that took yields to record lows as the Monetary Policy Council gathered for a two-day meeting to decide on interest rates.

The zloty depreciated 0.2 percent to 4.1305 against the euro at 2:18 p.m. in Warsaw, after strengthening 1.8 percent over the last three days. The yield on 10-year bonds rose eight basis points, or 0.08 percentage point, to 3.59 percent, paring a drop by a total of 44 basis points in the last five days.

The central bank keep the benchmark rate unchanged at a record low of 3.25 percent when it announces its decision tomorrow, according to all 35 economists surveyed by Bloomberg. Investors are speculating whether Governor Marek Belka will stick to his “wait-and-see” stance from March or acknowledge weaker economic developments in Poland as well as the euro region and the U.S. over the past month.

Expectations of rate cuts in future months and “the threat” of a budget amendment are risks weighing on the zloty, Bank Pekao SA (PEO) economists, led by Marcin Mrowiec, wrote in a note today.

The budget gap after April will reach 84.5 percent of the full-year plan of 35.6 billion zloty ($11.2 billion), the Finance Ministry said on its website yesterday.

The spread between nine-month forward rate agreements, derivatives used to bet on interest rates, and the Warsaw Interbank Offered Rate narrowed to 48 basis points today from 53 basis points yesterday, signaling a decline in the odds for two quarter-point rate reductions this year.

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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