Zloty, Bond Yields Tumble After Deeper-Than-Expected Rate Cut

The zloty depreciated the most in six weeks after the central bank cut its benchmark interest rate by 50 basis points, beating expectations.

The zloty retreated as much as 0.9 percent against the euro after the decision, the most since January 28, and traded 0.4 percent weaker at 4.1558 at 5:36 p.m. in Warsaw. The yield on two-year bonds dropped nine basis points, or 0.09 percentage point, to 3.47 percent.

Poland’s central bank cut rates by 50 basis points, or 0.5 percentage point, to a record low of 3.25 percent. It was the fifth reduction in as many months and the first of more than 25 basis points. The bank is taking a “wait-and-see” approach, Governor Marek Belka said at a news conference in Warsaw today.

“What we heard was an announcement that you should not expect rate cuts for a long period of time, so the potential for yields going down seems limited,” Wojciech Labryga, who helps manage 9.5 billion zloty in assets at PKO BP PTE pension fund in Warsaw, said by phone.

“Given that the central bank practically closed the door on further cuts, we believe that the market will draw a line on the rate cuts story and look at the -- now even more compelling -- growth outperformance story for Poland versus Central and Eastern Europe,” Royal Bank of Scotland Group Plc analysts Roderick Ngotho and Abbas Ameli-Renani wrote in a note. “We maintain a positive view for the zloty.”

Ott Ummelas in Tallin, Estonia at oummelas@bloomberg.net

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