Zloty Strengthens to 11-Week High on Foreign Inflows Into Bonds

The zloty advanced to the highest level in almost three months and bond yields set record lows on foreign inflows triggered by speculation over more bond buying by global central banks and more rate cuts in Poland.

The zloty gained 0.8 percent to 4.1234 against the euro at 6:09 p.m. in Warsaw, the strongest on a closing basis since Jan. 17 and the biggest appreciation among the 31 major currencies tracked by Bloomberg. The yield on Poland’s 10-year bonds fell 13 basis points, or 0.13 percentage point, to an all-time low of

3.50 percent, down 44 basis points this month.

The currency and bonds rallied after Japan announced plans to step up monetary easing and as weak U.S. jobs data stokes speculation of more liquidity inflows from global central bank bond-buying programs, which feed a hunt for yield. Poland’s economic slowdown is piling pressure on central bank Governor Marek Belka and his policy council to resume interest rate cuts.

“For now, I can’t see factors that could limit these flows, unless the Monetary Policy Council decides to scare investors by saying it does not intend to cut rates,” Pawel Radwanski, a fixed-income analyst at Raiffeisen Polbank SA, said by phone from Warsaw.

Policy makers start their two-day meeting on interest rates tomorrow. The council is expected to keep rates unchanged this week after reducing them by a total of 150 basis points since November to a record low of 3.25 percent last month, according to all 35 economists surveyed by Bloomberg.

Nine-month forward rate agreements, derivatives used to bet on interest rates, traded 53 basis points below the Warsaw Interbank Offered Rate, signaling bets for more than two quarter-point rate reductions this year.

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