As analysts fear Poland could join the victims of the global financial meltdown, Prime Minister Donald Tusk said, Tuesday, that if the zloty depreciates still further, to over 5 to the euro, then his government is ready to intervene.
“After consultation with the finance ministry and experts, the government is calm. The Polish zloty is reaching its apex when it comes to depreciation. At some point the currency is expected to strengthen. And we would like to take advantage of this moment and sell the euro [which Poland holds in EU funding].”
Tusk’s announcement came after the zloty dropped to its historic lows on Monday, when it cost 4.77 against the euro. It slipped further down on Tuesday, when at times it traded at 4.94 against the euro.
The reaction to Tusk’s statement was instant. The Polish zloty rapidly made up 0.04-0.05 zlotys against major currencies and temporarily bounced back from historic lows.
The euphoria did not last , however, and zloty slipped back again late afternoon.
Rafal Antczak, analyst at Delloite, believes that the government intervention has chances to be successful, but only if the government is determined.
“This statement is likely to drive away the profiteers trying to weaken the zloty. […] But the PM needs to be prepared for the markets to say “check!”. It the euro really exceeds five zloty, then the government must fulfil its promise. Otherwise, this could be an incentive to further weaken the Polish currency,” explains Antczak.
Poland - ‘a sub prime market’?
Investors are fleeing Central and eastern European (CEE) currencies in fear that western European banks have over leant to the region. A whole host of negative economic indicators, and results showing a falling away of exports, have added to the gloom.
A Moody rating agency released a report Tuesday saying that the recession in emerging countries in Europe will be more severe than elsewhere. Investors fear that Poland and other ex-communist countries in Europe could be the next victims of the global finance crisis. Some analysts are describing Eastern European countries as "sub prime" markets, in reference to the sub prime mortgage market in the US, where defaulting on payments ultimately led to the financial meltdown on that side of the Atlantic.
In a report to clients, Danske Bank said: "The crisis in Central and Eastern Europe is getting out of hand and investors are aggressively exiting CEE markets."
"We are expecting that the Polish Zloty to going to continue to weaken to the point when the euro is worth PLN 5.0," said analysts from BPH Bank. (pg/jm)
Source: PAP, Puls biznesu, Rueters