Zloty Rises to Two-Month High as Poland Keeps Rates Unchanged

The zloty advanced after Poland kept borrowing costs unchanged, refraining from joining a global wave of easing to defend against deflation.

The currency gained 0.3 percent to 4.1580 per euro at 3:25 p.m. in Warsaw, reversing losses from earlier and extending this year’s advance to 3.1 percent, the best performance among 14 currencies in developing Europe tracked by Bloomberg. The yield on Poland’s two-year zloty government bond rose five basis points to 1.61 percent, increasing for a third day.

The central bank, led by Governor Marek Belka, kept the key interest rate at 2 percent, matching estimates of 34 out of 36 economists surveyed by Bloomberg, with two expecting a quarter-point cut. While consumer prices declined by the most on record in December, Poland’s economy is showing signs of resilience with manufacturing increasing to an 11-month high in January.

“It was only the recent run of stronger activity data that prevented a rate cut,” William Jackson, a senior emerging-market economist at Capital Economics Ltd. in London, wrote in a note. “However, with the economy still in deflation, the case for policy easing is building and, for now, we think the rate council will lower the benchmark rate by 25 basis points next month.”

Polish consumer prices have fallen for six consecutive months, sliding 1 percent in December from a year earlier, the worst deflation since the statistics office started publishing comparable data in the 1980s. The rate of price changes in Poland has been below the central bank’s tolerance range of 1.5 percent to 3.5 percent inflation for almost two years.

China Cuts

Poland’s rate decision comes as China cut its reserve-requirement ratio for banks effective on Feb. 5 in a bid to boost liquidity. The European Central Bank unveiled a 1.14 trillion-euro ($1.3 trillion) bond-buying program last month to combat deflation.

The bank’s rate-setting panel will hold a news conference explaining the decision at 4 p.m. local time.

“Unless Belka clearly signals during the press conference that the council is ready to cut in March, the December low at 4.1494 will remain a valid short-term target” for the zloty, Piotr Matys, a London-based foreign-exchange strategist at Rabobank International, said by e-mail.

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