The zloty slid to its weakest in almost four months and Polish bond yields jumped the most since November on concern Greece may exit Europe’s currency union.
The zloty depreciated 1.2 percent to 4.3146 against the euro as of 5:06 p.m. in Warsaw, the lowest intraday level since Jan. 23. It had the steepest drop among more than 20 emerging-market currencies tracked by Bloomberg. The yield on 10-year notes rose 10 basis points to 5.47 percent, the steepest rise since Nov. 23.
Greece’s political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure agreement on a unity government. German Chancellor Angela Merkel’s party was defeated in an election in the country’s most populous state. The euro area is Poland’s biggest trading partner.
“Central Europe is back to being at the epicentre of contagion risks, due to its proximity to the danger zone,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, wrote in an e-mail to clients. “There are good reasons to like the zloty from a fundamental standpoint, but investors are switching to an aggressive position-squaring mode, which means that even the fundamentally sound currencies are being penalized.”
Poland’s economy will grow 2.7 percent this year, the fastest pace in the European Union, as the euro area contracts, European Commission forecasts showed May 11. The country was the only member of the trading bloc to avoid a recession in 2009.
The central bank last week surprised the market with the first increase in interest rate by an EU nation this year to control inflation. Policy makers lifted the main rate by a quarter point to 4.75 percent, the highest since January 2009, and didn’t rule out further moves as the economy slows at below-forecast rate.
The cost of insuring Polish government debt against non-payment for five years using credit-default swaps grew 15 basis points to 234, data compiled by Bloomberg show. The swaps that rise as the perception of country’s creditworthiness deteriorate are at the highest level since Feb. 2.