Zloty plunges to lowest level of 2001
The zloty lost more than 4% of its value against the dollar and the euro on Friday as worries about the country's economic prospects weighed it down and as emerging market currencies hit heavy selling.
Panicky selling by foreign and domestic investors pushed the zloty to 4.22 vs. the dollar, its lowest level this year, and near a two-month low of 3.54 to the euro at 11:55 GMT, and analysts said the Polish currency could weaken further. The slide in the previously buoyant zloty was matched by sell-offs in other Eastern European currencies like the Hungarian forint, which fell 4%, and the Slovak crown.
"There is no single reason for the zloty's deterioration today it just seems like the country's overall economic climate has worsened," said Marcin Mroz, economist at SG Bank in Warsaw. "With poor trade figures expected over the next few months and increased political instability ahead of (general) elections in September, the zloty will lose further," said Mroz, who forecasts the zloty at 4.38 against the dollar by September. Analysts said that comments by Poland's left-wing opposition leader Leszek Miller, tipped to be prime minister after the Sept. 23 polls, that Poland was near a financial crisis stirred unrest among portfolio investors.
Miller said that "the specter of an economic crisis (in Poland) is becoming more and more real although it would not be as serious as in Mexico or Brazil we could be on the verge of turmoil."
In another remark that worried investors, Miller said if elected he would propose legislation to enable the government to share responsibility with the central bank for targeting inflation. The National Bank of Poland (NBP) is fiercely independent. Some players cashed in their zloty options and sold high-yielding treasury bonds, whose yields rose some 20 basis points across the curve on Friday.
Analysts say the zloty, which is still up nearly 9% against the euro so far this year and down 1% vs. the dollar, would probably weaken somewhat further over the remainder of 2001, but most do not expect any crisis. "No, I don't expect any financial crisis, where currency vulnerability hurts the stability of the banking system or the economy but of course it will hurt inflation," said Mateusz Szczurek, analyst at ING Barings in Warsaw.
Also hurting the zloty was last week's current account data, which showed the first signs of a long-awaited export weakening as well as negative sentiment toward emerging markets worldwide, analysts said.
The European Central Bank's decision to leave interest rates unchanged on Thursday also compounded the zloty's worries by diminishing hopes for a quick economic recovery in the European Union buyer of two-thirds of Poland's exports.
Economic growth is seen at just 2-3% this year, the government is struggling to plug a gaping hole in state finances, and punitively high interest rates are hurting hopes for a quick recovery in ailing domestic demand.
TPSA soars on news of bond issue
Shares in Telekomunikacja Polska (TPSA) jumped after Reuters reported that the Treasury Ministry is considering issuing bonds convertible into TPSA shares as a substitute for a sale of a 10% stake to France Telecom.
TPSA shares, which were already firmer on Friday extended gains on the news and were trading up 4.8% at zl. 16.5 in late trade and accounted for more than 30% of total turnover.
Treasury Minister Aldona Kamela-Sowinska said that after winning a no-confidence vote in Parliament on Friday (see story, page 3), she had completed negotiations with the French operator on its option to buy the stake.
She said she expected a decision from France Telecom, which controls 35% of TPSA, Eastern Europe's largest telecoms operator, by end-July, but did not give further details on the possible bond issue.
