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ZLoty Weakens Before Fed Decides on Bond Buying, Yields Drops

Dec. 12 (Bloomberg) -- The zloty declined, snapping a three-day rally, as investors awaited the U.S. Federal Reserve’s decision on expansionary measures to boost the world’s biggest economy and Polish inflation data.

The zloty weakened 0.2 percent to 4.0942 per euro as of 10:09 a.m. in Warsaw, reducing this week appreciation’s to 0.6 percent, still the biggest gain among 31 major currencies tracked by Bloomberg. The yield on 10-year notes fell four basis points to 3.84 percent, a record low.

The Federal Reserve may announce later today $45 billion in monthly Treasury buying to bolster an existing program to buy $40 billion in mortgage bonds each month, which may send additional stimulus to the economy, according to a Bloomberg survey of 49 economists. The debt purchase plan may fuel further risk appetite and buoy emerging-market assets.

The Fed decision may “determine the zloty’s direction in the nearest days or even weeks,” Maciej Reluga, chief economist at Bank Zachodni WBK SA, wrote in a note today.

Poland’s inflation rate is expected to fall to a two-year low of 2.9 percent in the 12 months to November from 3.4 percent in October, according to the median forecast from a Bloomberg survey of 32 economists before the data are published tomorrow.

Such a decline may “justify deeper interest rate cuts,” Marcin Mrowiec, chief economist at Bank Pekao SA, wrote in a note today. Policy makers have cut interest rates twice in as many months, lowering the reference rate to 4.25 percent.

To contact the reporter on this story: Konrad Krasuski in Warsaw at kkrasuski@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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