Poland steps in to stem zloty’s rise

Poland steps in to stem zloty’s rise
By Peter Garnham
Copyright The Financial Times Limited 2010
Published: April 9 2010 13:40 | Last updated: April 9 2010 13:40
http://www.ft.com/cms/s/0/6279ff3c-43cd-11df-b474-00144feab49a.html


The Polish zloty suffered its sharpest fall in two months on Friday after the country’s central bank intervened to stem the currency’s recent rapid rise.

The National Bank of Poland said it had sold the zloty and bought “a certain amount” of foreign currency.

The zloty dropped 1 per cent to 3.8795 against the euro after the announcement, its sharpest fall since late February.

The action came as the central bank sought to rein in the appreciation of the zloty, which rose 6 per cent against the euro in the first three months of this year, its strongest quarterly rise in six years.

The zloty hit a 16-month high of 3.8234 against the euro earlier this week. Investors have been attracted by the fact that Poland is the only European Union nation to have avoided a recession during the financial crisis.

Dominik Radziwill, deputy Polish finance minister, said he supported the central bank’s decision and shared its concerns over the rise in the zloty.

“This is definitely a beneficial move. It’s a factor that the market needs to take into account in its analysis,” he said.

“We fully agree with the central bank’s policy on that matter.”

The action was the first intervention to weaken the zloty since the 1990s and analysts said it marked a paradigm shift in the National Bank’s behaviour.

Martin Blum at Ithuba Capital said it should now be questioned to what extent central and eastern European central banks were ditching, or at least reconsidering, their previous free-float currency models in favour of a more Asian-style interventionist approach, with a focus on both export growth and building forex reserves.

He said it might trigger a broad-based move by the region’s central banks to slow currency appreciation.

“Such a sea-change in strategy would not only have significant implications for CEE currency markets, but also sovereign credit markets and would ramp up competitive pressure further on countries on the periphery of the eurozone,” said Mr Blum.

“In short, it shouldn’t be ruled out that this action by the National Bank of Poland is a game-changer, not only for Poland but for the region.”