East European Currencies: Polish Zloty Declines Against Euro

By Ewa Krukowska

Aug. 23 (Bloomberg) -- Poland's zloty declined against the euro yesterday, paring a weekly advance, on concern Europe's economic slowdown will deepen, curbing investor appetite for the region's currencies. The Czech koruna fell.

The zloty snapped three weeks of losses versus Europe's single currency, making it the third-best performer among emerging-market currencies. Industrial orders in the euro area fell the most in more than six years in June, the European Union's statistics office in Luxembourg said yesterday. The data pushed the euro lower against the dollar.

``The fall of the euro and concerns that Europe's growth prospects may worsen caused a decline in the zloty,'' said Grzegorz Maliszewski, an economist at Bank Millennium in Warsaw. This `` prompted investors to take profit on earlier gains,'' he added.

The zloty was at 3.3051 per euro in Warsaw, from 3.3339 on Aug. 15, a gain of 0.9 percent. It may ``strengthen toward 3.20 at the end of this year,'' Maliszewski forecast.

Poland's Monetary Policy Council rejected a quarter-point increase in the benchmark interest rate last month because a majority of rate setters said a strong zloty and an expected economic slowdown should help curb inflation, according to the minutes of the meeting released Aug. 21.

Policy makers will probably leave the main rate unchanged at 6 percent next week, according to a Bloomberg survey of 15 economists.

Carry Trades

Hungary's forint posted the biggest weekly advance in two months, strengthening 2.3 percent to 233.89 per euro.

The forint is supported by bets that its interest-rate advantage over the euro area will continue to attract carry trades, where investors borrow cheaply in currencies with lower rates and invest in higher-yielding assets elsewhere.

It may advance to 225 per euro by the end of the year because the central bank will probably keep rates unchanged at 8.5 percent as the European Central Bank signals lower borrowing costs to stimulate growth, said Ulrich Leuchtmann, an analyst at Commerzbank AG in Frankfurt.

The Turkish lira rose for a second week, strengthening to 1.1866 per dollar, from 1.1873 on Aug 15.

The lira is the best emerging-market performer this quarter as policy makers raised the key interest rate to 16.75 percent, the highest among major developing economies.

In other trading, the Czech koruna snapped four weeks of losses, gaining to 24.422 per euro, from 24.536 on Aug. 15. The Romanian leu rose 0.6 percent on the week, to 3.5283, from 3.5499. The Slovak koruna was little changed at 30.316 per euro.

To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net;