The zloty was the worst performing emerging-market currency after the South Korean won and yields on government bonds dropped as the slowest Polish inflation since 2006 stoked speculation about further rate cuts.
The zloty depreciated for a third day this week after Polish consumer prices rose 1.3 percent in February from a year earlier, the smallest advance since October 2006 and missing the 1.5 percent median estimate from a Bloomberg survey of 36 economists. Derivatives used to bet on interest rate levels showed traders increased expectations that Poland will cut borrowing costs again this year after last week’s reduction left the main rate at a record low of 3.25 percent.
The Polish currency depreciated 0.4 percent to 4.1566 against the euro at 5:22 p.m. in Warsaw, lagging only the won’s 1.3 percent slide among more than 20 emerging-market currencies tracked by Bloomberg. The yield on Poland’s two-year notes fell for the third straight day, declining six basis points, or 0.06 percentage point, to 3.27 percent, the lowest since Feb. 6.
The inflation data are “conducive to speculation on further interest rate cuts,” Bank Zachodni WBK SA economists, led by Maciej Reluga, wrote in a note today. “We forecast a further reduction in inflation, even to below 1 percent.”
Nine-month forward rate agreements fell to 31 basis points below the Warsaw interbank offered rate today, showing expectations for another quarter-point rate reduction this year.
Polish central bank Governor Marek Belka and fellow policy maker Elzbieta Chojna-Duch said yesterday that further interest-rate cuts are still possible if economic growth and inflation weaken more than expected by the central bank.