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UPDATE 2-Poland intervenes to curb zloty, sets precedent

Published 04/09/2010, 10:32 AM
EUR/PLN
-

* Central bank in first zloty intervention since 2000 float

* Govt says it fully supports move, shares c.bank concern

* Zloty falls 0.5 pct, but analysts say uptrend could resume

(Recasts, adds analysts, MPC member, detail)

By Marcin Goettig and Dagmara Leszkowicz

WARSAW, April 9 (Reuters) - Poland's central bank sold zlotys on Friday, surprising markets with its first intervention since introducing a free float in 2000 as it sought to temper the surging currency's impact on exports and the wider economy.

The central bank said in a statement it had bought "some currencies" on the market around Friday. It gave no other details, but a Warsaw-based dealer said he believed the central bank bought about 40-50 million euros for zlotys.

The action, which the government said it backed fully, drove the zloty down 0.5 percent against the euro, though economists said the currency might strengthen again.

The European Union's biggest ex-communist member, Poland is the only country in the bloc to have avoided recession last year and currency investors have taken note.

Before Friday's move, the zloty had gained 6 percent against the euro in the year so far and was near a 16-month high.

"This is a battle with our own success because the zloty's rise in the last three months is a result of the large demand for Polish bonds from abroad, as well as privatisation inflows," said Rafal Benecki, senior economist at ING Bank.

The country's robust growth prospects stand in stark contrast to a number of European countries, notably peripherals such as Greece or Spain.

Poland's debt levels are also well below the EU average, making Polish debt attractive to investors.

FINMIN STAMP OF APPROVAL

"This is definitely a beneficial move. It's a factor that the market needs to take into account in its analysis. We fully agree with the central bank's policy on that matter," Deputy Finance Minister Dominik Radziwill told Reuters by telephone.

He said the ministry shared the central bank's concern over the zloty's strength.

At 1305 GMT, the zloty was at 3.8720/50 per euro, sharply weaker than 3.8340 earlier on Friday.

The currency's strength has prompted concern that Poland could pay an economic price as zloty gains have made exports less competitive.

But some analysts doubt the central bank will be able to halt the zloty's rise.

"We remain confident in the medium-term uptrend in the zloty," said Koon Chow, FX strategist at Barclays Capital. "We think the central bank wants to slow the pace of zloty appreciation so as not to imperil the cautious cyclical recovery."

Chow said this kind of strategy was employed in other emerging market economies and there were good reasons for authorities not to try to weaken the currency too much either.

A bout of currency weakness could stoke inflation and affect Poland's external debt position.

(Additional reporting by Kuba Jaworowksi and Pawel Sobczak, writing by Karolina Slowikowska; editing by John Stonestreet)

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