CEE Macro Weekly: ‘More or less’ budget-neutral

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TOP MACRO THEME(S):

• Fiscally neutral PIT cut (p.3) – Given the widespread expectations of tax cuts ahead of Poland’s parliamentary elections in 2027, the presentation of budget-neutral measures can be viewed as a positive surprise. That’s why the tax system changes proposed by Polish the government on Wednesday were positively received by the financial markets.

WHAT ELSE CAUGHT OUR EYE:

• ROM: The National Bank of Romania kept interest rates unchanged, in line with expectations. The key policy rate has stood at 6.50% since August 2024. In its statement, the NBR stressed the need to remain cautious due to ongoing inflationary pressures and elevated uncertainty. Domestic sources of uncertainty included the unstable political situation, which could result in limited or no further fiscal consolidation. Among external factors, the war in the Middle East and its impact on energy markets remain crucial. The NBR also approved its Inflation Report, in which it forecasts a sharp decline in CPI inflation in 3q26 to 5.9% y/y from 10.4% y/y at the end of 2q26 (due to base effects related to the fading impact of the unfreezing of energy prices and the VAT rate increase in 3q25). Inflation is expected to return to the target tolerance band (1.5-3.5%) towards the end of 2027. The NBR also highlighted inflation risks related to food prices due to this year’s drought and high energy prices.
• POL: CPI inflation rose to 3.0% y/y in July from 2.5% y/y in June, confirming the flash estimate. The acceleration in inflation was primarily driven by fuel prices (following the expiry of the government’s fuel price reduction programme at the end of June) and, to a lesser extent, by prices in core categories. Core inflation (excluding food and energy) accelerated to 3.1% y/y in July from 3.0% y/y a month earlier. Food prices continued to decline in y/y terms (−0.4%), but due to this year’s weaker harvest we expect them to increase in the second half of the year. The government again cut VAT on fuels and introduced a price cap mechanism for the period from 17 to 31 August, which reduced fuel prices by PLN 0.90–1.00 per litre, or by more than 10%. Following this intervention, we preliminarily estimate that CPI inflation in August will rise to no more than 3.3–3.4% y/y. Towards the end of the year, CPI inflation may accelerate to 4.0% y/y, while core inflation is expected to reach 3.5% y/y. We believe that the inflation increase in the coming months will not prompt the MPC to raise interest rates, but it will effectively discourage the Council from cutting rates, at least until the end of this year.
• POL: S&P DJI has reclassified Poland from an emerging market to a developed market. The reclassification will take effect with the index rebalancing in September 2027.

THE WEEK AHEAD:

• Later today, Fitch is due to review Poland’s rating. We expect no change at A- with a negative outlook (revised down from stable in September 2025). Although one of the agency’s senior officials warned that rising debt could lead to a downgrade, he also noted that a negative outlook is typically maintained for at least 18 months.
• The key event in the region next week will be the MNB meeting on Tuesday (we expect a 25bp rate cut to 5.50%). Among macro data releases, Poland’s retail sales data for July (due on Monday) will be worth watching.