CEE Macro Weekly: Diverging interest rate paths in the CEE

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TOP MACRO THEME(S):

• Hawkish pressure in the CEE (p.3) – The US and Israeli war with Iran shook the global economy, pushed up inflation and led to hawkish shifts at many central banks. In response to the deterioration in the inflation outlook, the ECB and CNB raised rates by 25bp. Other central banks in the CEE region remain in wait-and-see mode for now, but some might soon resume interest rate cuts.

WHAT ELSE CAUGHT OUR EYE:

• POL: The government has extended the reduced VAT rate on fuels (from 23% to 8%), together with the maximum price mechanism until the end of June. However, the extension does not include the excise duty cut of PLN 0.28–0.29 per litre. As a result, fuel prices rose significantly in mid-June, which, all else equal, will translate into an increase in average fuel prices in CPI terms of around 4.6% and lift inflation by around 0.2pp in total. In June alone, the effect will be about half as large. Prime Minister D. Tusk, in turn, said that the government would end the lower fuel price programme in the summer.
• POL: The government has adopted a draft law introducing a tax on windfall profits earned by fuel companies between March and December 2026 . The estimated revenue, at PLN 4bn, is to be used to finance the lower fuel price programme. In 3q26, the government also wants to adopt a draft law tightening the sugar levy system by increasing levy rates and expanding the list of products covered by it. The legislative work list also includes a draft update of the existing excise duty roadmap, involving an increase in excise duty rates on alcohol in 2027, as well as an increase in the so-called “small bottles” levy, on spirits in packaging not exceeding 300ml, from PLN 25 to PLN 100 per litre of pure alcohol.
• ROM: President N. Dan appointed A.Vestea, the PNL’s first deputy leader, as the new designated prime minister after his adviser, E.Tomac, withdrew, unable to secure a parliamentary majority. However, the National Political Bureau of the PNL adopted six decisions that collectively reject both the cabinet proposed by designated PM A.Vestea and any governing arrangement with the PSD.
• HUN: Prime Minister P. Magyar announced that the government will submit a proposal to parliament to remove the fuel price cap. According to the prime minister, the market price of fuel is expected to fall HUF 10–15 below the price cap this week, making the price cap unnecessary.

THE WEEK AHEAD:

• Attention will focus on a series of Polish data releases for May and the MNB meeting. On Monday, data on retail sales, wages, employment, construction output and PPI inflation will be published. On Tuesday, M3 money supply growth will be released, while on Wednesday, together with Statistics Poland’s statistical bulletin, the registered unemployment rate will be published.
• Hungary’s MNB will meet on Tuesday, and the outcome may be another interest rate cut , as CPI inflation unexpectedly declined to 1.8% y/y in May from 2.1% y/y in April, despite having been widely expected to accelerate.