Economic news

• CPI: CPI inflation in Poland accelerated from 3.4% yoy to 4.0% yoy in September, coming in marginally below both our forecast and the market consensus (4.1% yoy). The increase in inflation was driven primarily by fuel and energy prices. Food prices, as expected, stopped declining. On the downside, core inflation surprised, potentially easing to 3.2% yoy. We discussed the September inflation release in greater detail in our commentary following the publication.
• FUEL PRICES: President Karol Nawrocki signed the windfall profits tax legislation targeting fuel companies and referred it to the Constitutional Tribunal for ex-post review. According to government representatives, this clears the way for reductions in fuel excise duties and VAT. The new fuel-price support package will remain in place until the end of 2026. In our view, the package should materially reduce fuel prices. We estimate that it will lower the upcoming inflation peak by around 0.7 percentage points, although it will also result in higher inflation once the temporary tax reductions expire. According to the regulatory impact assessment, reducing the VAT rate on fuels from 23% to 8% until the end of 2026 would cost the budget PLN 3.24bn, while lower excise duties would reduce revenues by a further PLN 2.1bn.
• BUDGET: The government adopted the 2027 Budget Act, with only minor changes relative to the draft we discussed earlier this month. At the same time, the Ministry of Finance published an updated Public Debt Management Strategy. The document contains revised public debt projections, according to which State Public Debt (PDP) will continue rising until 2029, reaching 59.2% of GDP, before declining in 2030. Net PDP (adjusted for budgetary cash holdings) is expected to exceed 55% of GDP in 2028. The Ministry explicitly acknowledges that, should this scenario materialise, the fiscal prudence procedures stipulated in the Public Finance Act would be triggered, including a freeze on public-sector wages and a slower indexation of pensions and disability benefits. Meanwhile, the general government debt-to-GDP ratio is projected to rise to 76.6% by 2030.
• SENTIMENT: According to European Commission data, Poland’s Economic Sentiment Indicator declined from 99.5 to 98.8 points, primarily owing to weaker sentiment in the services sector. Recent survey data would be consistent with GDP growth slowing to roughly 3.2-3.6% yoy, although it is worth remembering that similar indicators failed to capture the acceleration in activity observed in Q2 this year. Meanwhile, according to S&P Global, sentiment in Polish manufacturing improved in September, with the PMI rising from 48.3 to 49.0, above market expectations.
• MoF: The Ministry of Finance’s cash reserves amounted to PLN 170bn at the end of September. The government has already secured around 94% of this year’s gross borrowing requirements. In October, the Ministry plans to hold three government bond auctions with total supply ranging from PLN 22bn to PLN 38bn. For Q4 2026, planned bond issuance amounts to PLN 60-90bn. Most of the funds raised will serve as pre-financing of the government's borrowing needs for 2027. Last week the Ministry of Finance sold PLN 3.0bn of 51-week Treasury bills, against demand of PLN 4.76bn, at a yield of 4.40%. The Ministry had previously announced a planned supply of PLN 2-3bn, compared with the PLN 2-4bn range outlined in its monthly issuance plan. At the supplementary auction, an additional PLN 612m of Treasury bills was sold.

Financial markets update

The external environment is not particularly favourable for Polish assets, but things would be much worse if the rise in yields on developed-market government bonds had not stalled (and, in Germany's case, partially reversed). As a result, Polish assets “only” have to contend with a strong dollar. This alone creates depreciation pressure on the zloty. Consequently, while the zloty weakened by around 2 gr over the past week and the main Polish equity indices fell by more than 2%, the yield on the Polish 10-year benchmark actually declined by solid 20 bps.

All of this, however, is becoming somewhat less important this week, as domestic monetary policy will take centre stage. The return of the CPN programme (government's countermeasures scheme aimed at curbing fuel prices by reduction of indirect taxes) was described by some commentators as a coup de grace for interest rate hikes. We consider this conclusion premature, and the market has generally not adjusted its expectations as sharply as some commentators have suggested. Cuts in indirect taxes spread the shock over time, but do not eliminate it. Moreover, from the perspective of potential second-round effects, gross tax rates are of limited importance. How the NBP interprets the lower inflation peak remains uncertain, and the comments of the NBP Governor will therefore be particularly important. Our view is that the return of CPN programme does not rule out interest rate hikes.