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Zloty Extends Gain Versus Euro as Premier Outlines Budget Cuts

The Polish zloty strengthened the most in two weeks against the euro after Prime Minister Donald Tusk outlined plans to cut the budget deficit to about 3 percent of gross domestic product next year and 1 percent in 2015.

The zloty climbed as much as 1 percent, the most since Nov. 3, and traded 0.7 percent stronger at 4.4189 per euro as of 2:22 p.m. in Warsaw.

Poland, the only member of the 27-nation EU to avoid a recession in 2009, has struggled to contain its deficit and public debt as the euro area’s sovereign-debt crisis stalls hiring and hurts corporate investment plans. Poland’s A- rating may be at risk without additional measures to cut the shortfall as growth slows, Piotr Kowalski, head of Fitch Ratings’ local unit, said in an interview last month.

Tusk said today the government would reduce public debt to about 52 percent of gross domestic product next year and about 47 percent of GDP by the end of 2015. Debt, at 52.8 percent of GDP in 2010, is hovering near a legal ceiling of 55 percent that would trigger mandatory austerity measures.

The yield on the five-year bond maturing in October 2016 fell 33 basis points after Tusk’s speech to 5.163 percent.

The government stepped in to defend the zloty by selling euros and dollars in September and October through state-owned Bank Gospodarstwa Krajowego, traders involved in the transactions said on Nov. 16. The central bank sold foreign currency on the market three times between Sept. 23 and Oct. 3 in its first market operations to support the zloty since the currency was floated in 2000, the bank said.

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