Zloty eases, Polish central bank expected to cut rates

BUDAPEST: The zloty eased slightly on Wednesday ahead of a meeting of the Polish central bank which is expected to launch a new round of monetary easing in Central Europe.

Growth in the region's biggest economies is faster than in the euro zone but inflation has been around zero, encouraging central banks to loosen monetary screws.

Seventeen out of 25 economists in a Reuters poll forecast 25 basis point cut in the Polish central bank's 2 percent main interest rate for Wednesday, five forecast 50 basis point reduction and three analysts expected no change.

"However, the expectation is by no means a slam dunk," SEB said in a note, adding that most Polish rate setters may think that deflation imported from abroad pushed down Polish prices rather domestic factors which the central bank can influence.

"A 25-basis-point (rate) cut is largely priced in, but the central bank could surprise and opt for a 50-basis-point cut, which would likely drive EUR/PLN up to 4.20," SEB said.

Commerzbank said in a note a smaller cut was more likely.

It said swing voters in the bank may want a gradual change as the zloty has become more volatile recently due to concerns over Greece's status in the euro zone and the Ukrainian crisis, and the impact of the Swiss franc's surge on Polish banks.

The zloty and the Hungarian forint eased 0.1 percent against the euro, with the Polish currency trading at 4.172 and the forint at 307, just off a 2-week low.

Polish government bonds were little changed.

The kuna firmed a shade to 7.662 against the euro.

The currency of Croatia, which has been in recession for years, hit 11-year lows against the euro two weeks ago at 7.73.

It has recovered to two-month highs, helped by euro selling by the central bank last month and expectations that Croatia would sell a euro-denominated bond soon.

After an international road-show on Monday and Tuesday, Croatia has opened books on a euro-denominated 10-year benchmark-sized bond at mid-swaps plus 287.5 basis points, Thomson Reuters financial news service IFR said.