BUDAPEST/WARSAW: Poland's zloty slipped to a three-week low against the euro on Tuesday as the European Commission criticised proposed changes to the country's media laws and concern grew that the government will raise spending in its first full year in office.
Other Central European currencies regained some ground but remained fragile after assets tumbled on Monday amid worries about the Chinese economy.
The zloty has been hardest hit among the region's currencies at the start of 2016, even after Polish and Czech manufacturing figures for December showed healthy economic growth continuing.
Changes in Polish law proposed by the ruling Law and Justice party (PiS) would increase its control over the constitutional court and state-run media. Brussels has reacted with criticism and talk of EU action against Poland.
"The European Commission looking into details of changes to the high court and public broadcasting (debate on 13 January) add to speculation on the zloty," Raiffeisen said in a note.
Pledges made by PiS, which was elected in October, to increase spending have also raised concern among investors.
The zloty touched a three-week low at 4.3205 against the euro. It recovered to 4.306 by 1320 GMT, still weaker by 0.1 percent from Monday.
Central banker Andrzej Kazmierczak said the bank would try to prevent excessive swings in the zloty.
Dealers said they did not hear about market intervention by the central bank.
"No, I didn't see NBP on the market and I don't take these comments seriously," one dealer said. "I can't see any reason to intervene at this stage ... the market moves are slow."
Analysts said the zloty would remain under pressure but may be near the bottom already.
"Investors are unsure what the government is going to do and it is unclear what the budget will look like," said Piotr Poplawski, an analyst at BGZ BNP Paribas in Warsaw.
"It seems that the government may scale back some of its (spending) proposals, which may be positive, but markets are rather sceptical," he said.
Poplawski referred to pledges to raise the personal tax-free allowance, lower the retirement age and introduce a new benefit scheme for families. Only the last of those has been included in 2016 budget.
In a note, Commerzbank analyst Simon Quijano-Evans retained his "defensive" overweight recommendation for Central and Eastern European debt, with the exception of the shaky Polish market, saying that geopolitical tension in the Middle East maintained the risk of a further fall in oil.
Serbia's dinar gained 0.25 percent to 121.95 against the euro as the central bank continued to sell euros in the market to buoy the local currency.
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