UPDATE 3-Poland intervenes to bolster zloty

Fri Jun 7, 2013 3:30pm EDT

* Several interventions after zloty hit one-year low

* Central bank had earlier said weak zloty not a concern

* Zloty gains as much as two percent versus euro

* Intervention aimed at trimming excessive volatility, c.bank head says

By Dagmara Leszkowicz

WARSAW, June 7 (Reuters) - Poland's central bank intervened on the currency market on Friday to prop up the zloty for the first time in 18 months after the currency hit a one-year low the previous session.

Over the past month, the zloty has fallen because of lower Polish interest rates and fears that the U.S. Federal Reserve could wind down its quantitative easing campaign, something which has hit emerging market currencies around the world.

Some analysts thought Polish officials were moved to act by concerns that a falling zloty could boost the value of the country's debts, which could trigger painful spending cuts.

The central bank confirmed it sold some foreign currencies on the spot market. Dealers said it had entered the market several times and that state-owned BGK bank also stepped into the market in the late afternoon trade, helping the zloty to extend its sharp gains.

Poland's central bank governor, Marek Belka, told the state news agency PAP that the bank's move was aimed at trimming excessive fluctuation on the foreign exchange market.

"It is absolutely not a test of betting against the trend. We just had a couple of crazy days recently (on the FX market) and we had to stop it," Belka said, adding that further interventions are not ruled out.

The currency jumped by around 2 percent versus the euro after the central bank's move. By 1615 GMT it had given up some gains to trade at 4.2325 per euro.

Traders said the bank intervened for the first time at the zloty level of 4.30 to the euro. They did not give details on the total amount of intervention or the amount of zlotys.

The bank last stepped into the market to lift the zloty in December 2011, when officials were seeking to keep the value of the government's foreign-denominated debt below a constitutionally set level of 55 percent of gross domestic product.

Breaching the level would have forced the government to reduce spending substantially.

On Thursday, the zloty fell to its lowest levels since June 2012 after Belka said currency weakness was not a concern.

Rafal Benecki, chief economist at ING Bank Slaski, said the intervention was a surprise that contradicted the governor's statement.

"It's strange, because Belka seemed as if he had wanted to weaken the zloty on Wednesday and now they are strengthening it," Benecki said.

"The bank most likely wants to reduce the volatility of the currency, because there is a large risk of debt breaching the 55 percent of GDP threshold."

The ratio stood at 52.7 percent of GDP at the end of last year, according to Polish accounting rules.

The central bank brought its main rate to a new low of 2.75 percent earlier this week, 200 basis points lower than in November, when it launched an easing campaign to help boost the flagging economy.

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