The zloty retreated to a six-week low with economists from Citigroup Inc. to ING Groep NV expecting the Polish central bank will today signal readiness to cut interest rates as the debt crisis saps economic growth.
The zloty slid 0.3 percent to 4.2061 per euro as of 1:50 p.m. in Warsaw. It pared an earlier decline of 0.6 percent after the bank left the main rate at 4.75 percent, matching expectations from 27 of 28 economists surveyed by Bloomberg. The zloty has lost 0.8 percent in September, the steepest drop among more than 20 emerging-market currencies tracked by Bloomberg.
Governor Marek Belka will hold a news conference at 4 p.m. in Warsaw to explain the decision. The central bank, the only one in the European Union to raise borrowing costs this year, will “significantly tone down its statement” and remove references to the “restrictive bias of the monetary authorities,” Piotr Kalisz, chief economist at Citigroup said in an e-mailed note today. Policy makers may reduce rates in October, according to ING and Citigroup.
“The statement today will de facto pre-announce the rate-cutting cycle,” Janusz Dancewicz, chief economist at DZ Bank Polska SA in Warsaw, wrote in an e-mailed comment.
Investors in interest rate derivatives have increased their bets that the borrowing costs will fall this year after an Aug. 30 report showed economic expansion slowed to the weakest pace in 11 quarters in the three months to June 30. Polish manufacturing declined in August as output of goods slowed the most in more than three years, HSBC Holdings Plc said this week.
“The hawkish bias is now gone,” Rafal Benecki, chief economists at ING’s Polish unit Bank Slaski SA in Warsaw wrote in an e-mailed comment today. “We believe the Monetary Policy Council may also signal its intentions to cut in fourth quarter, but the Council is faced with the dilemma of a credible explanation of its reversal in view.”
Three-month forward-rate agreements are trading 44 basis points below the Warsaw Interbank Offered Rate today compared with 30 basis points a month ago, according to data compiled by Bloomberg.
“While we acknowledge that the central bank is slowly gearing itself up for a rate cut, we believe that this pricing is overly aggressive,” Guillaume Salomon, a London-based strategist, and Jaroslaw Janecki, an economist in Warsaw at Societe Generale, SA wrote in an e-mailed note to clients today.
They recommend investors pay fixed rate on three-month forward rate agreements in anticipation the contracts will rise to 4.85 percent from 4.53 percent today.