Economic news

• INTEREST RATES: MPC member I. Dąbrowski assessed that interest rate cuts will be halted and that keeping rates unchanged is more likely than raising them. Dąbrowski also stressed that the MPC should firmly communicate its readiness to defend price stability — such communication could stop inflation from spreading under the so‑called “inflation fog”, when increases in hydrocarbon prices enable price hikes even for products whose production costs have not risen. The most hawkish MPC member, Joanna Tyrowicz, stated that the appropriate level of the interest rate in Poland at this moment is 4.75%. NBP President Adam Glapiński gave an interview to The Wall Street Journal, in which he said that Poland is entering the energy shock from a position of strength and can react cautiously. While the conflict in the Middle East poses a short‑term risk of rising prices, the NBP President points to other factors — weaker demand, slowing wage growth, and an increase in cheap imports — that keep inflation close to target. Meanwhile, MPC member Ludwik Kotecki expressed the view that in the coming months the Council will adopt a “wait & see” approach, meaning it will neither raise nor cut its forecasts. In his opinion, the March rate cut was most likely the last one this year, even if the war in the Persian Gulf ends.
• BUDGET: Prime Minister Donald Tusk and Finance Minister Andrzej Domański presented a package of measures aimed at mitigating the impact of rising fuel prices. The package includes lowering VAT on fuels from 23% to 8%, reducing excise duty to the minimum level required by EU law, and introducing a maximum retail fuel price. The fiscal cost of the proposed measures amounts to PLN 1.6 billion per month, and it will be partly financed by a new windfall tax on fuel companies. More details on these measures are provided later in the report.
• LABOR MARKET: The registered unemployment rate rose in February to 6.1% from 6.0% a month earlier. The result is in line with the earlier preliminary estimate from the Ministry of Family, Labour and Social Policy. The number of unemployed registered at labour offices increased in February to 955 thousand. Although the reading matched the market consensus, its details are rather pessimistic. The number of unemployed rose in February by 21k mom, clearly above the seasonal pattern. MRPiPS previously noted that the increase in unemployment may have been driven by limited funding for activation programmes, which reduced the number of deregistered unemployed.
• RETAIL SALES: Retail sales increased by 5% yoy in February, slower than the forecast consensus of 6% yoy. There were many sources of weakness. Sales of durable goods, especially furniture and electronics/household appliances, are slowing down. Sales of food and of clothing and footwear were also low. The only bright spots in the data were fuel sales and the “other” category. The outlook for retail sales and consumption in the coming months is not favourable. Inflationary pressure is rising and wage growth is slowing. Purchasing power will continue to grow, but much more slowly than before. Our detailed commentary on retail sales can be found here.
• MONEY SUPPLY: In February, money supply was 10.6% higher than a year earlier and above the forecast consensus (10.0% yoy), mainly due to the public sector: local governments and social security funds, which recorded an unexpectedly strong increase in deposits. Growth in net foreign assets was also high.
• DEBT: Polish Development Bank (Bank Gospodarstwa Krajowego, BGK) sold three series of FPC bonds for PLN 874 million with demand amounting to PLN 1.06 billion. The Ministry of Finance sold government bonds worth PLN 7.3 billion with demand reaching PLN 8.5 billion. Notably, investor demand for the fixed‑rate 10‑year DS1035 bonds exceeded PLN 2 billion at a yield of 5.725%, significantly below 5.80%.

Polish government responds to higher fuel prices

In response to the sharp increase in crude oil prices triggered by the conflict in the Persian Gulf, the Polish government is introducing a comprehensive package of measures aimed at reducing pressure on fuel prices. The programme, called “CPN” – short for “Lower Fuel Prices” (pol. Ceny Paliw Niżej) – combines cuts in indirect taxes with regulatory changes.

A key element of the package is the reduction of the VAT rate on fuels from 23% to 8%. At the same time, the government plans to lower excise duty: by PLN 0.29 per litre of gasoline and by PLN 0.28 per litre of diesel. The scale of these reductions corresponds to the maximum scope permitted by EU regulations. EU rules set minimum fuel tax levels at €0.359 (approx. PLN 1.53) per litre of unleaded gasoline and €0.330 (approx. PLN 1.41) per litre of diesel.

Cuts in indirect taxes on fuels are not new in Poland – in 2022, as part of the Anti‑Inflation Shield 2.0, the VAT rate on fuels had already been temporarily lowered from 23% to 8%.

An important supplement to the package includes measures intended to ensure that tax reductions actually translate into lower retail prices. To that end, the government has announced the introduction of a maximum fuel price, set daily by the Minister of Energy on the basis of wholesale quotations and estimated operational costs. In addition, a so‑called windfall tax is planned — a tax on excess profits of fuel companies benefiting from the currently elevated price levels.

According to the Prime Minister, the combined effect of the measures could reduce fuel prices by approximately PLN 1.20 per litre, which aligns with our estimates. The proposal does not mention LPG, suggesting that the CPN programme will not cover this part of the market. It is also worth recalling previously implemented measures, such as reductions in retail margins by Orlen and lower wholesale prices. According to company statements, diesel margins have already been reduced almost to zero.

A fast‑tracked legislative process is expected to allow the package to come into force in April, before Easter. Its formal duration under the law is limited to the end of June of this year.

How will the CPN programme affect the inflation outlook? Nominally, the package could lower the CPI inflation rate by around 0.7 percentage points. In price terms, this implies a reduction of roughly 15% per litre of fuel (gasoline, diesel). However, our earlier forecasts already assumed certain government‑driven relief measures, albeit at a smaller scale. Consequently, with inflation projected at around 3.5% yoy in March, the implementation of the package creates room for price dynamics to fall toward 3% yoy as early as April. The final impact will depend on the persistence of the intervention and on future developments in global oil prices.

Will this be a sufficient impulse for the MPC to return to a more dovish stance and to reconsider interest rate cuts? Probably not. Persistently high geopolitical uncertainty will remain an argument for a cautious approach and for continuing the “wait and see” strategy, keeping interest rates unchanged.

Financial market update

The end of last week saw intense hedging of risky positions, particularly in the currency markets, causing the zloty to weaken. However, a calm and quiet weekend has not lead to a sustained appreciation of the zloty. The USD/PLN exchange rate has not remained below 3.72 and is now approaching 3.73; EURPLN, on the other hand, has rebounded from support at 4.28 and is currently half a grosz higher. The fixed income market closed on Friday perfectly halfway between 5.85 and 5.90 on the yield on 10-year POLGBs, so given the market sentiment, we would not be surprised if the yield on 10-year bonds tests the resistance level of 5.90 again. What is interesting, however, is the behaviour of the Warsaw Stock Exchange, which remained in a horizontal trend throughout last week – this may be due to the fact that Poland has relatively diversified hydrocarbon supply chains, and concerns about the stability of the energy market are moderate in the short term. However, we expect that given the scale of tensions in the underlying markets, valuations of domestic assets will remain heavily influenced by news from abroad this week.