Zloty Hits 12-Year Low as Pandemic Engulfs Polish Economy

Polish zloty slumped to its weakest level since 2009 on growing concern that the worsening pandemic will delay this year’s economic recovery.

The currency of the European Union’s largest eastern member dropped as much as 0.4% on Thursday to 4.6467 per euro, the lowest level since 2009. It’s been a challenging few weeks for emerging markets, which have been rocked by higher Treasury yields, a stronger U.S. dollar as well as turmoil in Turkey.

The zloty’s slump comes hours after the Polish government announced tighter restrictions to fight the pandemic, as the country reported a record number of new virus cases for a second straight day. Eastern Europe is currently suffering the world’s highest death toll, per capita, from the pandemic.

“The depreciation is underpinned by the third wave of the pandemic and tough restrictions imposed to prevent the health care sector from collapsing,” said Piotr Matys, foreign-currency strategist at Rabobank in London. “The zloty has cleared the key resistance area, which favors further gains for the euro in the coming weeks.” He expects the zloty to appreciate in the second half of the year.

The zloty has lost 2.7% against the euro this month, making it the second-worst performer in emerging markets after the Turkish lira. MSCI’s gauge of EM currencies has fallen about 2% from this year’s high set in February, while its index of developing-nation stocks has erased gains for the year.

Ambitious Target

The new coronavirus measures, which stop short of a full lockdown and include closing more stores, preschools and nurseries, could mean the government’s already ambitious goal of 4% economic growth this year is in jeopardy.

Citigroup Inc. economists, who envisage the Polish economy expanding 3.7% in 2021, said on Wednesday the recovery will probably be delayed to the third from the second quarter, and expects a flood of downward revisions in growth forecasts.

The zloty has been on the back foot ever since the central bank unexpectedly intervened to weaken the currency late last year. Policy makers have warned in recent months they were ready to step into the market again to ensure the exchange rate will keep the economy competitive.

©2021 Bloomberg L.P.

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