Polish Zloty Declines Against Euro, Snapping Two-Day Advance

By Ewa Krukowska

Sept. 11 (Bloomberg) -- The zloty fell against the euro, snapping a two-day gain, a day after the Polish government set 2011 as a target date for adopting the European currency.

The zloty slid 0.6 percent to 3.4089 per euro as of 8:48 a.m. in Warsaw, from 3.3878 yesterday. It earlier rose 0.1 percent. Against the dollar, Poland's currency declined 1.1 percent to 2.4456, from 2.4202.

Poland and other countries that have joined the European Union since May 2004 have to adopt the euro as part of their membership agreements.

Before adopting the euro, Poland needs to meet inflation, debt, deficit and interest-rate criteria. It will also need to spend at least two years in the exchange-rate mechanism, which will test the zloty's stability. In the mechanism, it will be pegged to the euro and allowed to trade within a band.

Poland may need to raise the benchmark 6 percent interest rate more than twice to meet the inflation limits for adopting the euro in 2011, policy maker Dariusz Filar told TVN CNBC Biznes today. Entering the euro zone was possible from July 1, 2011, Filar told the broadcaster.

Poland needs one further interest rate increase as soon as possible and possibly more if the zloty continues weakening, central bank policy maker Andrzej Wojtyna said in an interview for Rzeczpospolita.

The zloty lost 4.4 percent against the common currency in the past two months on concern that economic slowdown in the 15-nation euro zone will spread to eastern Europe.

The impact of the slowdown in Europe on Poland won't be ``very strong'' as the country is not as dependent on exports as the Czech Republic or Hungary, Wojtyna told the newspaper. He said he believed in a ``soft landing'' for the Polish economy, according to Rzeczpospolita.

Poland would become the third former communist country to drop its currency for the euro, following Slovenia and Slovakia, which is set to do so on Jan. 1. Hungary aims to meet the terms for membership next year.

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