Zloty loses ground ahead of vital government meeting with central bank

The zloty gave back ground to the dollar and the euro yesterday as investor caution ahead of a key meeting between the government and the central bank triggered profit-taking, dealers said. The zloty had surged to a 30-month high against the dollar on Monday on foreign demand for steep local yields. Poland is offering zl.4.7 billion worth of fixed-rate 2- and 5-year T-bonds at a primary tender today. However, by close of trading yesterday the Polish currency had slipped back to 3.9322 against the dollar, and 3.5015 against the euro. Government and National Bank of Poland (NBP) representatives are due to meet at midday today, in a last-ditch attempt to find a compromise over interest rate policy. The cabinet is demanding quick and steep cuts, which the NBP says could hurt economic stability. Analysts warn an agreement may be impossible to reach for the quarreling policy-makers, opening the way to legislative attacks on central bank independence that could hurt Poland's European Union (EU) entry efforts. Senior government officials have indicated they will decide after today's meeting whether they will support a bill sponsored by junior coalition partner the Polish Peasants' Party (PSL), which proposes adding six new members to the NBP's 10-strong Monetary Policy Council (RPP). The expansion would tip the RPP's stance toward easing interest rates. (Reuters)