East European Currencies: Polish Zloty Drops to One-Year Low

By Ewa Krukowska

Oct. 22 (Bloomberg) -- Poland's zloty fell to a one-year low against the euro as concern the global financial crisis is worsening sent stocks tumbling. The Hungarian forint snapped a two-day decline after the central bank unexpectedly raised rates.

The zloty also slumped versus the dollar as the credit- market meltdown and Argentina's plan to seize $29 billion of private pension funds stoked concern the nation is headed for a second default in a decade, fueling investors' aversion to emerging-market assets. The NTX Index of the 30 largest publicly traded companies in central and eastern Europe dropped 4.2 percent.

``There is a massive sell-off of eastern European currencies and one can only wonder whether the sky is the limit now,'' said Bartosz Pawlowski, a currency strategist at TD Securities in London. ``There are worries the crisis may worsen, and the news from Argentina hurt sentiment. Fear is the main driver now and no-one is looking at fundamentals.''

The zloty slid as much as 3 percent to 3.7935 per euro, the weakest since September 2007, and was at 3.7730 by 1:50 p.m. in Warsaw.

The Polish currency, which climbed to a record 3.2018 per euro in July on the prospects of adopting the euro and the outlook for economic growth, slid almost 15 percent in the past two months on concern the financial crisis will spread.

Poland's zero-coupon government bond due July 2010 dropped for a second day, sending the yield 52 basis points up to 7.16 percent, a four-year high for Polish two-year notes, according to Bloomberg data. Bond yields move inversely to prices.

Czech Vote

The Czech koruna gained as much as 1 percent to 25.313 per euro before a vote of confidence in the government of Prime Minister Mirek Topolanek today. It was last at 25.475 per euro.

The opposition Social Democrats, who initiated the motion, need to win over independent lawmakers or disgruntled ruling coalition members to get the 101 votes needed in the 200-seat Parliament and oust the government. The coalition controls 100 seats in the assembly.

Rebels within the coalition, which lost regional elections that ended on Oct. 18, helped reject the 2009 budget in a preliminary vote last night.

Turkey's lira lost as much as 4.8 percent to 1.6670 against the dollar, the weakest level since June 2006, and was last at 1.6506. It declined almost 40 percent in the past two months.

The Turkish central bank will keep its main interest rate at 16.75 percent when it meets today, according to all 18 economists surveyed by Bloomberg News. The decision will be announced at 7 p.m. in Ankara.

Hungary's forint advanced after the central bank unexpectedly raised its key interest rate by 3 percentage points to 11.5 percent, the highest level in the European Union.

The forint rose as much as 2.5 percent to 271.27 per euro and was last at 276.40. It earlier slumped to a two-year low of 283.35 versus Europe's common currency.

The Romanian leu gained 1.2 percent to 3.5790 per euro and the Slovak koruna was little changed at 30.502 against the euro.

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