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The Warsaw Voice » Business » October 29, 2008
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Zloty Takes a Dive
October 29, 2008 By A.R.    
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6.5 billion euros is how much Poland has received from the European Union budget this year, while paying in only 2.2 billion euros.

Investors dumped the Polish currency in panic throughout last week. The zloty depreciated mainly as a result of negative sentiment toward the whole region.

Investors are afraid that the ongoing financial crisis around the world will hit the emerging markets of Central and Eastern Europe. Another factor with a negative impact on the zloty was an unexpected increase of interest rates in Hungary, by 300 basis points to 11.5 percent. This decision, made by that country's central bank, was aimed at halting the depreciation of the forint and stem the outflow of investors from Hungary. The hike added to the disparity in interest rates between Poland and Hungary. The Polish currency nose-dived to zl.3 to the U.S. dollar and zl.3.80 to the euro Oct. 23. To compare, in July the dollar cost just over zl.2 and the euro fetched about zl.3.20.

Analysts predict that investors' doubt about the region as a whole, combined with a possible drop in the euro/dollar exchange rate, could lead to a further depreciation of the zloty against both the dollar and the euro. However, the Polish economy is doing well and, apart from the global crisis, there is no fundamental reason why the zloty should depreciate. The latest plunge in the zloty is mainly due to emotions, not fundamentals, experts say.

"The current developments on the currency market are not based on fundamental factors, and the zloty's weakening has been caused mainly by a strengthening dollar," said Sławomir Skrzypek, president of Poland's central bank. "The foundations are strong, and the depreciation stems from a regional perception of the situation in Poland."
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