Zloty Jumps Up to 11-Month High Figure on Foreign Inflows

Zloty, the major currency of Poland has advanced to the highest level in last 3 months and the bond yields have gone down to record low figures as well. Foreign inflows have been triggered by speculation over further bond buying by the global central banks. It is also expected that more rate cuts will be experienced in Poland.

Zloty has increased by 0.8% against Euro and is currently priced at 4.1234 per Euro. This marks its strongest value since 17th January, on closing basis. This is the biggest appreciation among most of the major currencies in Europe. The yield on the 10-year bonds of Poland experienced a decline of 13 basis points and it has gone down to an all-time low figure of 3.50%. Incidentally, the bond yields have gone down by 44 basis points on this month.

The currency and the bonds rallied after announcement from Japan to step up the monetary easing further. Incidentally, the recent statistics on US industries is not good enough either and there are speculations of further liquidity inflows from the global central bank bond buying program. If this happens, the same may feed a hunt for further yield. The economic slowdown of Poland is currently piling up the pressure on Central Bank’s Governor Marek Belka and the policy council for resuming the interest rate cuts.

According to the Fixed Income analyst of Raiffeisen Polbank SA, Pawel Radwanski, there are not many factors that can play a huge role in limiting the flows, unless the Monetary Policy Council of Poland decides to scare the investors by stating that it has no intention of cutting down the rates.

On tomorrow, the policy makers of Poland will start the two day meeting to have discussion on interest rates. The council is expected to keep the rates unchanged for now. Incidentally, since November, the rate has been declined by 150 basis points and on last month, it came down to a record flow figure of 3.25%.

On the other hand, the forward rate agreements for the last 9 months were trading 53 basis points lower than the offered rate by Warsaw Interbank. Incidentally, 9 month forward rate agreements are derivatives used for betting on the interest rates. Many economists are expecting that within 2013, there can be 2-quarter point rate reductions on the country’s interest rates.