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Polish zloty advances as central bank predicts euro adoption

The Polish zloty rose by the most in two weeks against the euro after central bank head Slawomir Skrzypek said the country may adopt the euro as early as 2012.

Poland will switch currencies three years after meeting the criteria needed for adopting the euro, Skrzypek said in an interview for Wprost magazine today. The zloty may also benefit from demand for emerging market assets, buoyed by expectations interest rates are on hold in the US and will increase by less than previously forecast in the euro region. „Gains in emerging market currencies will continue this week, and we see the zloty supported,” said Gerhard Lechner, an economist at Raiffeisen Centrobank SA in Vienna. The euro adoption dates cited by Skrzypek „are the dates expected. It would be negative if he'd said 2015 or 2016,” or gave no date, Lechner added. Against the euro, the zloty rose to 3.877 at 2:47 p.m. in Warsaw, from 3.904 on February 2, after gaining 0.4% last week. It may strengthen to 3.85 per euro by February 9, said Lechner, who recommends buying the Polish currency.

Poland joined the European Union on May 1, 2004. Like all new members of the EU, it must reduce its budget deficit to below 3% of GDP, maintain debt below 60% of GDP, and keep inflation and borrowing costs in check. The finance ministry targets early 2009 for meeting the criteria. Poland's budget deficit is forecast to be 3.4% of GDP this year. The public sector deficit fell below 48% of GDP last year and is forecast to remain unchanged in 2007. Investors were lured to the zloty, and to other emerging markets currencies, after Market News last week cited „well- informed sources” saying ECB officials will pause for „some time” after raising interest rates 25 basis points in March or April „at the latest.” The Frankfurt-based ECB's 19-member governing council will wait until March 8 before raising its refinancing rate by a quarter point to 3.75%, said all but one of 25 economists in a Bloomberg News survey. They were split about what happens after that, with only 14 predicting another increase in June. The yield on Polish benchmark 5.25% government bond due October 2017 reached 5.158% at 2:22 p.m. in Warsaw, 108 basis points more than an Austrian government bond of similar maturity. In other trading, the Hungarian forint climbed to an eight-day high of 254.27 per euro in Budapest. The Czech koruna rebounded after two days of losses, to 28.13 per euro in Prague. (Bloomberg)