CEE Macro Weekly: NBP rate cut despite global turbulence

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TOP MACRO THEME(S):

• Implications of the Middle East conflict for the CEE (p.3) – The outbreak of war between the US/Israel and Iran and the potential permanent closure of the Strait of Hormuz increase stagflationary risks in CEE economies.

WHAT ELSE CAUGHT OUR EYE:

• POL: The MPC cut interest rates by 25bps, including the reference rate to 3.75%. One of the arguments for the cut was the new projection, in which inflation was clearly revised downward — it is expected to reach 1.6–2.9% in 2026, 1.1–3.7% in 2027, and 0.9–4.0% in 2028. Regarding GDP growth, the projection envisages 3.1–4.7% in 2026, 2.0–3.8% in 2027, and 1.8–4.1% in 2028. In its press release, the MPC pointed to growing uncertainty related to the geopolitical situation. In the baseline scenario, we still assume the key policy rate will drop to 3.50% - a level that the Council indicates as consistent with a lasting return of inflation to the target. In our assessment, however, prolonged geopolitical uncertainty may delay the next rate cut, as suggested by comments from governor Glapinski during his press conference (‘prospects for further interest rate cuts have deteriorated’).
• POL: President K.Nawrocki and NBP governor A.Glapiński presented, at a joint press conference, an outline of an alternative to the EU’s SAFE program - a domestic armaments financing program called “SAFE 0%”, to be financed with the support of the NBP. The program would provide financing worth PLN 185bn. Financing from the NBP would involve supplying funds to the Armed Forces Support Fund, based on the current legal framework, and if necessary also through legislative changes. According to unofficial information, one of the options under consideration is the revaluation of gold reserves (‘realizing the paper profit’). Another option would involve selling a tranche of gold and subsequently repurchasing it with the NBP’s own funds at the market price. The Minister of Defence, W.Kosiniak-Kamysz, said that regardless of whether the President signs the EU SAFE program or not, it will be implemented. He did not rule out that the modernization of the armed forces could be financed through both programs (the EU and the national one), but noted that he is waiting for the presentation of the details.
• POL: The Fitch agency affirmed Poland’s credit rating at A-/F1 and kept its negative outlook unchanged. The affirmation of the rating reflects a balance of strengths, including a diversified and resilient economy, which offset a high fiscal deficit. The negative outlook reflects the risk of the fiscal deficit remaining elevated and the continued increase in the debt-to-GDP ratio. An upgrade of the rating or the outlook could be possible if the credibility and effectiveness of fiscal consolidation increase, leading to the stabilization of the debt-to-GDP ratio over the medium term.

THE WEEK AHEAD:

• Apart from geopolitical developments, the main focus will be on inflation data for February, although their impact on the outlook for monetary policy will be weakened by concerns about the persistence of disruptions in commodity markets. In Poland, the data will include the annual revision of the inflation basket, and in addition to the February reading we will also see a revised estimate for January (we expect a slight downward revision).