• Currency rallied for second month after slump in January
  • Prospect for stable local rates, ECB easing support currency

Poland’s zloty appreciated the most in 14 months in March, supported by monetary stimulus from the European Central Bank and pledges from the nation’s policy makers to keep borrowing costs on hold.

The currency gained 0.7 percent to 4.2445 per euro at 6:02 p.m. in Warsaw, extending the monthly appreciation to 2.5 percent, the most after Russia’s ruble in developing Europe. Those gains have wiped out the zloty’s losses for 2016 after a shock sovereign credit-rating downgrade by Standard & Poor’s in January triggered a 3.6 percent slump that month.

The drag from the cut wore off in the following two months largely as a result of the expansion of the ECB’s bond-buying program and as the Federal Reserve said it would proceed with interest-rate increases cautiously. In response to the dovish comments, Poland’s central bank has held firm to a pledge to keep its benchmark rate at a record-low 1.5 percent even as the longest-ever stretch of deflation exerts pressure on policy makers to act to weaken the zloty.

“Positive sentiment in emerging markets, supported by dovish policies of the ECB and the Fed, is helping the zloty,” said Michal Dybula, chief economist at BNP Paribas SA’s Polish unit. “Fundamentally things haven’t changed much, except for the fact that the Polish rates council is a bit more hawkish.”

The annual rate of deflation deepened to 0.9 percent in March from 0.8 percent in February, according to a flash estimate released by the statistics office in Warsaw on Thursday.

Poland’s rate policy sets it apart from peers like Hungary, which surprised analysts with a reduction in borrowing costs last week.

The zloty is appreciating as “dovish central banks globally” are met by “a hawkish new Monetary Policy Council,” Maciej Reluga, the chief economist at Banco Santander AS’s local unit Bank Zachodni SA, said by e-mail.

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