Poland's finance minister said on Thursday it was likely to sell more euros to aid the zloty and its financial markets bounced back from a sell-off that has spread west due to concerns over banks and growth.
The zloty had fallen more than 12 percent since the start of this year against the euro in a slide that has engulfed others in the EU's eastern bloc amid worries about financing and a collapse in growth in their export-dependent economies.
The trend picked up pace this week following reports from ratings agencies and economists that the crisis will be worse than previously expected in former communist Europe and that imbalances there could cause problems for Western-owned banks.
Deputy Finance Minister Ludwik Kotecki told daily Gazeta Prawna the zloty was overly weak and that recent estimates showed it should ideally be trading slightly weaker than 4.10 against the single currency compared to about 4.70 now.
He said the currency should strengthen before the government takes the jump into the pre-euro ERM-2 currency grid.
"In May-June, when we should be joining the ERM-2, the zloty should be a lot stronger," Kotecki was quoted as saying by Gazeta Prawna newspaper.
"We will strive to set an exchange rate that would minimise the risk of quick revaluation (in ERM 2)," Kotecki added.
The zloty rose on Thursday to trade 4 percent above long-term lows reached a day earlier, which prompted the finance ministry to sell euros from EU funds on the interbank market. Local stock markets also gained almost 5 percent. Finance Minister Jacek Rostowski, asked whether the ministry would sell more euros on the market, told reporters in parliament: "At some point yes."
CORPORATE CRISIS
A candidate country must keep its currency in the ERM-2 grid for at least two years to prove it is stable enough to be swapped for the single currency, which the government plans for 2012.
Most analysts say it would be risky to enter ERM-2 now given the sharp depreciation and high volatility fuelled by a flight from riskier emerging markets assets as recession and the global financial crisis wreaks havoc in the corporate sector.
But one senior official said on Wednesday the government had started talks with the European Central Bank and a top aide to the Prime Minister told Reuters on Thursday the centre-right government believes Brussels and Frankfurt will back the plan.
"I think we will convince (the EU institutions) to open the door for Poland's euro zone entry," Slawomir Nowak said.
ING Bank Slaski warned of a "huge crisis" at Polish corporations this year as bad debts in the European Union's largest ex-communist economy rise on the back of the global financial crisis. [
Two rating agencies said on Tuesday the ratings of emerging European banks and their western owners could suffer in the global recession but the Czech central banker Miroslav Singer said the latest decline in the Czech economy should not cause local banks more serious problems
The zloty's gains may also erase some of the worries that its weakness would fuel inflation and prompt the central bank's Monetary Policy Council (MPC) to be more cautious, or even halt, a campaign of interest rate cuts aimed at boosting growth.
The MPC has slashed official borrowing costs by 175 basis points in three moves since November 2008 to bring its main rate to the current 4.25 percent.
Most recent available data showed the council was split down the middle on rates in December with the casting vote from the central bank governor Slawomir Skrzypek tipping the scales in favour of the 75 basis point cut.
"Probably the main argument of those who were against was the zloty," said Marcin Mroz chief economist of Fortis Bank Polska in Warsaw. Analysts still expect the MPC to cut rates by another 50 basis points later this month.
