Polish currency slides against euro

Thu Dec 18, 2008 10:29 AM EST

WARSAW — Poland's zloty extended its losses against the euro on Thursday amid growing fears that the country's hitherto booming economy will not prove immune to the global financial crisis.

Thursday's losses, which came as government data showed that industrial production fell by 8.9 percent in November from last year, mean the zloty has lost around 5 percent of its value against the euro over the past week.

The euro bought 4.1740 zlotys — up from 4.0834 on Wednesday and 3.9703 last Thursday. In late July, the euro bought only 3.2 zlotys.

Poland is by far the largest of 10 former communist countries in eastern Europe that have joined the European Union in recent years and so far has appeared to be relatively untouched by economic turmoil elsewhere.

However, the weakening currency and Thursday's unexpectedly poor production data indicate that "Poland is heading for a recession very soon," said Lars Christensen, an analyst at Danske Bank.

"The Polish economy is slowing dramatically," Christensen said.

Last month, the National Bank of Poland lowered its benchmark interest rate by a quarter point to 5.75 percent. While it so far has held off on the kind of dramatic interest rate cuts seen in western Europe and the U.S., economists are predicting another cut next week.

Lower interest rates can drive investors from a currency as they seek higher returns elsewhere, and the U.S. dollar has suffered this week from the Federal Reserve's move to cut interest rates to nearly zero.

The dollar bought 2.8463 zlotys on Thursday, down from 3.0257 zlotys a week earlier.