East European Currencies: Zloty Drops as Risk Appetite Falls

By Ewa Krukowska

Aug. 26 (Bloomberg) -- Poland's zloty fell against the euro as a deterioration in German business confidence this month dented investors' sentiment toward higher-yielding emerging- market currencies. The Hungarian forint dropped.

The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, fell to a three-year low of 94.8 in August, from 97.5 in July. Economists expected a drop to 97.2, the median of 35 forecasts in a Bloomberg News survey shows. The euro declined to the weakest level against the dollar since mid-February after the report.

``The Ifo data showed weak economic growth prospects for Europe,'' said Maja Goetting, Warsaw-based senior economist at Bank BPH, part of General Electric Co. ``This prompted some investors to sell the zloty and other regional currencies.''

The zloty dropped as much as 0.4 percent to 3.3137 per euro, and was at 3.3105 by 11:31 a.m. in Warsaw, from 3.2997 yesterday.

The zloty is the best-performing currency in Europe in the past 12 months, having gained 16 percent versus the euro as the central bank raised interest rates to a more than three-year high of 6 percent to curb inflation.

Policy makers will probably leave borrowing costs unchanged at their two-day policy meeting that started today, a Bloomberg survey of economists showed. The decision is due to be announced tomorrow after 11:30 a.m.

Poland's retail sales rose an annual 14.3 percent in July, compared with 14.2 percent a month earlier, the statistics office said today. That was more than the 14 percent median estimate of economists in a Bloomberg survey.

Forint Weakens

In other trading, the Hungarian forint declined 0.2 percent to 234.72 per euro, dropping for a third day.

The Magyar Nemzeti Bank in Budapest yesterday kept the two- week deposit rate at 8.5 percent, the second-highest in the European Union after Romania. The bank also lowered its forecasts for core inflation and economic growth, reinforcing speculation it may begin cutting rates in coming months.

The Romanian leu dropped 0.7 percent to 3.5452 against the euro and the Turkish lira lost 0.2 percent to 1.1904 per dollar.

The Czech koruna declined 0.1 percent to 24.479 versus the euro, while the Slovak koruna was little changed at 30.297 against Europe's common currency after policy makers kept the country's main rate at 4.25 percent today. Slovakia will join the euro area at the start of next year.

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