Zloty Rises to Six-Month High as Polish Bonds Gain on ECB Bets

Polish sovereign bonds rose with the zloty as investors bet the European Central Bank’s monetary stimulus plan will spark capital flows into the nation whose biggest trading partner is the euro area.

The currency appreciated as much as 0.3 percent to 4.1477 against the euro on Wednesday, the strongest level since July 30. The yield on the 10-year zloty government bond fell five basis points to 2.13 percent in a fourth day of declines.

Polish assets have gained following the ECB’s decision to buy 60 billion euros ($68 billion) of securities a month for at least 19 months. The zloty has climbed 3.7 percent since the Jan. 22 announcement, the most among regional peers after Hungary and Russia, while bond yields retreated 15 basis points.

“The markets are anticipating the euro area’s quantitative easing will spill over to Poland,” Ernest Pytlarczyk, the chief economist at Commerzbank AG’s Polish unit MBank SA, said by e-mail on Wednesday.

The zloty appreciated 0.2 percent to 4.1480 as of 4:19 p.m. in Warsaw. The rate on the government’s 10-year bond is 15 basis points away from a record low reached Jan. 30.

Some investors may also be speculating the Polish central bank will refrain from lowering borrowing costs when policy makers convene on March 4, according to Pytlarczyk.

While the monetary policy council has kept its key rate at a record-low 2 percent in the last four months, the median of 28 economists’ forecasts in a Bloomberg survey is for a 25 basis-point cut next week.

Tough Decision

Central bank Governor Marek Belka said in January there “appear to be sufficient arguments to sway the council in favor” of monetary easing. Fellow rate-setter Elzbieta Chojna-Duch said in an interview on Feb. 23 it will be “a tough, last-minute decision.”

“We see risks skewed to unchanged rates rather than a bigger-than-expected rate cut,” Agata Urbanska-Giner, a London-based economist at HSBC Bank Plc, said in an e-mailed note on Wednesday.

While Poland’s economic growth slowed to 3 percent in the fourth quarter from 3.3 percent in the previous three months, the expansion is set to swing back to the same pace in 2015, Urbanska-Giner said.

Consumer prices fell 1.3 percent in January from a year earlier after dropping 1 percent the previous month, already the worst bout of deflation since the statistics office started publishing comparable data in the 1980s.

Before it's here, it's on the Bloomberg Terminal.