Yesterday, the Polish government unveiled the key assumptions of the draft budget for next year, and it is clear that fiscal consolidation is not on the table. At the same time, the flash inflation reading for August indicates further cooling in price dynamics, fueling speculation about the next moves of the Monetary Policy Council (RPP). The last trading session of August is unfolding amid mixed sentiment and in anticipation of key U.S. macroeconomic data.
Budget: High Spending and Strong Growth Assumptions
The Council of Ministers approved the most important economic document of the year—the draft state budget for 2026. Although parliamentary work may introduce some adjustments, the main parameters are expected to remain unchanged. State revenues are projected to reach nearly PLN 650 billion, while expenditures will exceed PLN 900 billion. This translates into a deficit of more than PLN 270 billion, or 6.5% of GDP. Public debt is expected to reach 53.8% of GDP by year-end.
The government assumes GDP growth of 3.5% and average annual inflation of 3%. The largest spending categories will be defense (PLN 200 billion, almost 5% of GDP) and healthcare (nearly PLN 250 billion). Most economists view the draft as fairly realistic, though they note that growing borrowing needs will inevitably affect bond yields. Investors reacted calmly to the news, with Polish assets largely following global market sentiment.
Inflation Creates Room for Monetary Easing
The last trading day of the month traditionally brings flash inflation estimates. Poland surprised positively with CPI at 2.8% year-on-year, down from 3.1% previously and slightly below forecasts of 2.9%. This is also the lowest level since June 2023. On a monthly basis, prices even showed a small deflation of -0.1%.
With inflation close to the National Bank of Poland’s target (2.5% ± 1 percentage point) and the main policy rate still at 5%, expectations for rate cuts are heating up. The RPP meeting next Wednesday will likely bring at least a 25 basis-point cut, despite some hawkish remarks earlier this week from monetary authorities, including Iwona Duda. Markets now see it as increasingly difficult to argue against at least a modest easing of monetary policy. The zloty exchange rate has remained stable in response to the data.
Final Session of August
Investor sentiment remains mixed. Yesterday’s Wall Street session ended with a historic record for the S&P 500 index, but today’s Asian markets showed a split performance: slight gains in Hong Kong and mild declines in Tokyo. European equities, however, entered correction mode, with leading indexes down more than 0.5% by mid-morning Friday. The Warsaw Stock Exchange followed the trend, with the WIG20 slipping by a similar margin. After eight consecutive months of gains—the second-longest bull run in its history—August will end with a few percent decline for Poland’s blue chips.
Currency markets remain calmer for now but could be gearing up for this afternoon’s U.S. data releases. The EUR/USD pair continues to trade within its August range, briefly climbing above $1.168. Meanwhile, EUR/PLN remains below 4.27, and USD/PLN is hovering around 3.65.
Today’s Key Macro Data Releases
- 14:00 – Germany – CPI inflation
- 14:30 – USA – PCE consumer spending
Author: Adam Fuchs – FX Dealer at InternetowyKantor.pl
Source: CEO.com.pl
