• Petrol prices rose by 4.4% w/w, while diesel prices increased by 6.6% w/w
• This could lead to a +0.25pp impact on year-on-year inflation in March
• Natural gas prices are the one to watch, as they have a bigger impact on domestic electricity prices

Fuel prices have reported about a 5% w/w jump after the United States launched strikes against Iran last weekend, according to preliminary numbers quoted by CTK, the state news agency. In more detail, petrol prices rose by 4.4% w/w, while diesel prices increased by 6.6% m/m. We should emphasise that this is likely not nationally representative, though we doubt that nationwide prices will differ that much from the early numbers. Naturally, we don't know how fuel prices will develop until the end of March, but if this is the average month-on-month increase, it will bring price levels almost to their level from March 2025. As a result, fuel prices may have an impact of about +0.25pps on year-on-year CPI inflation.

Again, these are very early numbers, and the only reason we report on them is to provide an idea how much the conflict could exert pressure on domestic prices. We will not be surprised if other sectors report an increase due to the significant level of uncertainty, like transportation services, for example. Thus, we may see headline inflation near 2% y/y as soon as in March, though we expect it to remain slightly below.

This will be justification for the CNB to keep interest rates unchanged, and maybe even consider a rate hike, at least for a while. Our base scenario is for a hold decision on Mar 19, and possibly a hike in May if energy prices start rising sharply. As far as a hike is concerned, it will depend largely on how long the Strait of Hormuz is blocked, and how much other oil and gas suppliers make up for the loss of oil and natural gas exports. Natural gas is the key commodity to watch, as the Czech Republic's exposure to oil imports from the Middle East is relatively low, at less than 10% of total imports. On the other hand, natural gas prices have a bigger impact on domestic electricity prices, so this will be decisive for how energy prices develop overall.

• Havlicek offered no details, but implied that intervention would be bigger than it was in 2022-2023
• The government is currently working on revising ETS1, the goal is to bring down emission allowances to about EUR 30/tonne
• Plans to buy out the 30% minority stake in CEZ are being finalised

The government will not allow people to pay inordinate amounts of money on energy, industry minister Karel Havlicek told Echo24, a news site. He said that the government is currently in contract with energy suppliers, and he assured that there was no threat to energy supplies. However, Havlicek admitted that natural gas prices were a sensitive point, as domestic energy prices were largely dependent on them. While the situation is not critical, the government is ready to provide enough support, and Havlicek emphasised they would not leave people to see their energy payments soar, as the previous government did. He did not elaborate further, but we take this as strong enough evidence that this government will provide a generous price support scheme if necessary.

Havlicek also approached the issue with the ETS, saying that the government is currently focusing on revising the ETS1. He believes that emission allowances should not cost more than EUR 30/tonne, a level that was last seen in late 2020. Currently, emission allowances trade at over EUR 80/tonne. Havlicek emphasised that the current system was a giant detriment to European industry and needed to be revised. As far as the ETS2 goes, Havlicek believes that its postponement to 2030 would be the best-case scenario. This also happens to be after the next regular election, in the autumn of 2029, so such a delay would allow this government not to deal with the issue.

Regarding ways to deal with high energy prices, Havlicek also said that the government was near finalising its plan to fully acquire CEZ, the largest energy company in the country. Currently, the government has a 70% stake in the company, but it has been no secret that PM Andrej Babis wants to acquire full control. The current by-laws of CEZ prevent significant changes in the company's board, something Babis complained about during his first term as prime minister. This time around, the goal is to have CEZ fully under control and use it to regulate energy prices. Havlicek did not offer details, but he implied that plans could be ready soon. Based on previous remarks, the buyout of the minority stake will likely take place in 2027.

Overall, Havlicek's remarks confirm our expectations that this government is ready to intervene in the energy market, even more so than the previous government did. Furthermore, we expect a more generous price support scheme than in 2022-2023, which will push fiscal risks upwards. The main difference with the previous government is that this administration has no intention of delivering a significant fiscal consolidation effort after such price scheme wraps up, which means that general government debt will keep rising fast. As far as the SGP is concerned, we expect that the European Commission will once again allow member states to compensate for high energy prices, as it did after Russia invaded Ukraine in 2022.

• The interview was taken before US strikes against Iran began
• Prochazka's argument is that the economy is not overheating, and just recovering from recent economic shocks
• He would rather see the policy rate at 3.25%, a view he has expressed previously
• Yet, we believe his remarks are no longer relevant, and that Prochazka is unlikely to push for a rate cut any time soon

One rate cut is possible in 2026, provided that economic data allows it, CNB board member Jan Prochazka told Ekonom, a magazine. However, the interview was taken before the United States launched attacks against Iran, so the odds are that the context has changed already. Still, it is interesting to have a look at the reasoning before the latest geopolitical conflict, as it could provide some insight what the board could think after the conflict is over.

In a nutshell, Prochazka doesn't believe that the economy is overheating, even though fiscal loosening and rising household consumption are boosting growth. His argument is that the CNB could have gone a bit further in the latest monetary easing cycle, and he has remarked earlier that he would be more comfortable with a policy rate at 3.25% rather than 3.50%. Even then, Prochazka was cautious about rate cuts, saying that these could happen only if economic data shows unequivocally that the economy is not growing above its long-term potential. Recent staff forecasts put long-term potential GDP growth at around 2.5%, to provide context. Prochazka added that another argument one could bring up is that the economy is still recovering from its most recent shocks, like the COVID-19 pandemic and the energy crisis from 2022-2023. Thus, a stronger increase in economic activity would not necessarily mean growth above potential, in his opinion.

As we mentioned above, Prochazka's remarks are interesting from an academic standpoint only, as the war in Iran has altered the equation significantly. We doubt he will be pushing for a rate cut now, or any time soon. We expect that Prochazka will prefer to wait and see how energy prices pan out, and how long the conflict continues, as uncertainty remains considerable. Yet, his dovish stance suggests that Prochazka will likely not push for a quick rate hike, either, especially after headline inflation is currently so low. Thus, we believe that the CNB board will keep the policy rate stable for a while, and resort to temporary rate hikes only if energy prices start climbing at an alarming rate.

Strikes continue. Iran postpones mourning for killed leader Khamenei (Pravo)

Americans go to war, Czechs pay. Conflict in the Middle East threatens with high prices, not only for petrol (Lidove Noviny)

Oil shocks revives debate about Europe's vulnerability, but it is in better shape (E15)

War sharply changes Czech holidays (Mlada Fronta Dnes)

Second "shift" in the evening [on passing 2026 budget bill in second reading] (Hospodarske Noviny)

A billion-worth transport project could be covered by the European Investment Bank (E15)

Trump's policies are driving top scientists to the Czech Republic, but there may not be enough money to attract more (Hospodarske Noviny)

Becoming a pensioner earlier? Early retirement to become more beneficial to some people (Lidove Noviny)

Railway management still pays former managers CZK 345,000 (Mlada Fronta Dnes)

Crimes among foreigners decrease, government wants still wants harsher penalties (Pravo)

Question:

To what extent are natural gas prices regulated in Czechia? It seems like they are mostly market-based but as it is mentioned in the text the buffer comes from fixed-price clauses in contracts, however, these seem to be an arrangement between supplier and client rather than something imposed by the government.

The question was asked in relation to the following story: Iran conflict is likely to be pro-inflationary, narrow space for rate cuts

Answer:

Natural gas prices are partially regulated in the Czech Republic, to a far lesser extent than electricity prices. Currently, the regulated component of final retail natural gas prices is 25%, as per information from the energy regulator. To put that into context, the regulated component of final electricity prices is currently about 30%, after the removal of the renewable energy surcharge, which was about 15% of the final price. The size of that component depends on several factors, like infrastructure maintenance costs, transmission fees, etc. and is determined once a year by the regulator.

As far as fixed-price clauses in contracts are concerned, they are entirely market-based, and there is no government involvement. As far as households are concerned, these clauses typically last between 1 and 2 years for natural gas contracts, and between 1 and 3 years for electricity contracts. Meanwhile, business contracts are completely market-based.

Having said all that, we expect that if natural gas prices increase significantly, the government will intervene by offering a support scheme, similar to what happened in 2022. This coalition has made maintaining energy prices low as its top priority, so we expect fiscal support to be more generous than it was under the previous government. It will most likely follow a similar pattern, i.e. a price compensation scheme for both households and business, likely depending on consumption level, maybe with some consumption cap. We also expect that the EU will approve yet another suspension of SGP rules if another energy crisis is looming, so the Czech government will have its hands untied. It is where we see the biggest potential risk, as this government is unlikely to apply a fiscal consolidation effort similar to what the previous government did in 2024.

• Next MPC meeting: Mar 19, 2026
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: Before the last weekend of February, our stance would be that the CNB board may have an even harder time justifying no change in interest rates. The main reason was that headline inflation eased even more than the CNB projected, down to 1.4% y/y in February. Our argument would have been that the deceleration is still mostly due to volatile prices, this time food, and that the energy price cuts have been largely delivered in January. Yet, the start of a war between the United States and Iran has changed the equation, something acknowledged even by the doves on the CNB board.

Thus far, softer headline inflation has been primarily driven by tradable goods' prices, with food, fuel, and energy prices taking a plunge. Yet, this is likely to change now, as oil and natural gas prices soared, though not as sharply as in 2022 when Russia invaded Ukraine. In all fairness, Europe is now relatively more prepared to face such a shock, as there are more LNG terminals, and infrastructure diversification has been in progress. The Czech Republic in particular ended its dependence on oil imports from Russia in 2025, and the United States are now a much bigger producer and exporter. Yet, this will not prevent a noticeable pro-inflationary pressure, and the odds are that headline inflation will start accelerating, possibly as early as in March.

Meanwhile, domestic inflation pressure has not abated much. Service price growth eased mostly due to transportation services, which are likely to see yet another price hike due to higher oil prices soon. The labour market is less tight than previously, but it is still too tight in the service sector, which has been the main source of robust wage growth. CNB deputy governor Frait admitted that the economy doesn't really need more rate cuts when accounting only for domestic factor, and he is the biggest dove on the board. Thus, if external pressure turns inflationary again, the CNB board will have an easy time justifying another hold decision on Mar 19.

Regarding the coming months, it will depend a lot on how energy prices develop, and how the war in Iran will pan out. We doubt there will be a quick resolution of the conflict, but there may be a better idea where energy prices are headed by the MPC meeting in early May. In any case, until there is so much uncertainty, we see no space for rate cuts. In fact, we don't rule out rate hikes if energy prices start soaring again, as they did in 2022. However, the CNB is currently in a good position, as headline inflation is low, so it can afford to wait a bit longer than normal. It is why we don't expect more than 50bps of rate hikes in 2026 if circumstances require it. Furthermore, even if there are rate hikes, the odds are that the CNB will quickly lower the policy rate back to 3.50%, or maybe even lower if domestic conditions allow it. At this point, we don't believe it is meaningful to commit to any specific dates for rate hikes or cuts, given the significant level of uncertainty around this conflict.

Data Download

Data Download

Further Reading:

CNB board statement from latest MPC meeting, Feb 5, 2026

Post-meeting press conference, Feb 5, 2026 (in Czech)

Q&A after the latest MPC meeting, Feb 5, 2026

Minutes from the latest MPC meeting, Feb 5, 2026

Monetary Policy Report, February 2026

Macroeconomic forecast, February 2026

Meeting with analysts, Feb 6, 2026

CNB board profile

CNB board members' presentations, articles, interviews (Czech)

CNB board members' presentations, articles, interviews (English)

• Cumulative sales increased by 0.9% y/y in January-February
• Skoda Auto outperformed, its sales up by 21.8% y/y in February and 13.3% y/y in January-February
• The EV segment was behind headline growth, as plug-in hybrid sales were up 68.2% y/y in February, while battery electric car sales rose by 30% y/y
• Still, market share remains low, at 10.1%, with a lot of ground to cover
• Total vehicle sales rose by 6.6% y/y in February, out of which new vehicle sales were higher by 5.7% y/y

New passenger car sales rose by 4.2% y/y (wda) in February, adding up to 18,519 units, according to figures from the SDA, the car importers' association. It brought cumulative sales to 36,562 units in January-February, higher by 0.9% y/y. Skoda Auto outperformed the market yet again, reporting sales growth of 21.8% y/y in February and 13.3% y/y in January-February, with a market share of 39%.

Data Download

By fuel type, plug-in hybrids were the best performer, reporting an increase in sales by 68.2% y/y in February and 52.8% y/y in January-February. Meanwhile, battery electric cars were the second strongest, with sales rising by 30% y/y in February and 13.2% y/y in January-February. It brought the EV segment's market share to 10.1% over the period, a new high. In contrast, petrol car sales rose by a modest 1.4% y/y in February but fell by 2.2% y/y in January-February, being the weakest segment since the beginning of the year. Diesel car sales saw a modest increase, up by 3.6% y/y in February and 3.2% y/y in January-February, but their contribution to headline growth was marginal. Still, diesel car sales are slightly more than double than EV sales, so there is still a long way to go.

Used passenger car sales rose by 8.8% y/y in February, bringing their cumulative growth to 5.8% y/y in January-February. Sales volume has remained relatively stable recently, but it remains far behind new car sales.

Total vehicle sales, including buses, motorcycles, trucks, tractors, and trailers, increased by 6.6% y/y in February, out of which new vehicle sales were higher by 5.7% y/y. In January-February, new vehicle sales were higher by 4.9% y/y, out of which new vehicle sales rose by 3.1% y/y.

Overall, EU-wide trends are matched in the Czech Republic as well, singling out the EV segment as the strongest growth driver. In all fairness, one of the reasons is that the EV segment has been quite underdeveloped when compared to major economies, so there is much more room to grow. Furthermore, technologies improve constantly, while prices are falling, which has made electric vehicles far more affordable and attractive. Thus, the odds are this trend will continue, especially if we have more periods of oil prices soaring suddenly.

• Purchasing power gains, government stimuli to support household consumption against looser labour market
• Households seem to divert resources to house purchases at expense of consumer durables
• Food sales slow down but seasonally-adjusted data does not indicating lasting weakness, we assess

Retail sales increased by 3.5% y/y in January, exhibiting a flat growth compared to the previous month, the statistical office (KSH) reported. Seasonally-adjusted retail sales were up by 0.5% m/m and remained on a steady upward trend. The adjusted retail sales level has already caught up to the pre-war levels, gradually erasing the losses stemming from the simultaneous energy crisis and related uncertainty, in our view. Steady gains in purchasing power have supported household consumption and should continue to lend support to spending, in our view. Lingering uncertainty and loosening of the labour market, however, have exerted constraining effect on consumption, but the additional stimuli from the government's pre-election measures should keep it on a moderate growth path in the short term, we assess.

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Data Download

Data Download

The upward impetus of retail sales came from the non-food and fuel segments. Non-food sales rose by 4.7% y/y, which was one of the strongest increases in the past few years. The performance of the various sub-segments was non-uniform as the growth came from some individual areas like clothing, computers and electronics. Conversely, other key non-food sectors showed significant deterioration in their annual dynamics. This was the most visible in the consumer durable goods sales, which fell by 3.3% y/y and interrupted the rising streak since the early 2024. In addition, sales of motor vehicles also fell by 6.5% y/y in non-adjusted terms in January, shrinking for the third month in a row. We think the reduced appetite for consumer durable purchases might be related to the government's subsidised housing loan programme, diverting households' resources towards house purchases that require spending discipline in other areas. We expect this factor to maintain its restraining effect on household spending in the short run at least.

Fuel sales rose by 5.2% y/y in January, the strongest increase since the period of the fuel price caps. Food sales eased to 1.8% y/y growth in the month. The slowdown appeared to be partly due to high base effects, in our view, while seasonally-adjusted food sales showed a negligible 0.1% m/m loss and did not indicate a lasting weakening from a longer historical perspective.

• Fair elections should be carried out under all circumstances, Orban stresses

The parliamentary elections should not be postponed due to the war in the Mid-East and the related energy supply uncertainty, PM Viktor Orban said in an interview for the ATV. He thus rejected emerging media speculations for a possible postponement, originating from Orban's own earlier statement that he did not want elections to be held in such volatile times. The elections in Hungary should be organised and conducted fairly and the results should be acknowledged by all participants, Orban stressed in his interview, labelling the speculations about postponement as nonsense. The elections were an important pillar of stability of Hungary's political system, he furthered. Hungary has suffered political fractures and serious losses in the past and this was why stable institutions and predictable political system were particularly important, he highlighted. The elections therefore should be carried out properly under all circumstances, Orban emphasised.

President Tamas Sulyok has set the election date on Apr 12, the first possible date according to the acting legislation, we note.

Hungary wins double victory in Moscow - Russian side guarantees country's energy supply and two Hungarian prisoners of war from Transcarpathia are released (Magyar Nemzet)

PM Viktor Orban: We have the oil! (Magyar Nemzet)

Foreign minister Peter Szijjarto: We receive guarantee for natural gas and crude oil supplies in Moscow (Magyar Nemzet)

This has not been talked about before: Farmers are in huge trouble, and blow worse than Russian-Ukrainian war could await them due to Iranian conflict (Vilaggazdasag)

Merger of two domestic banks has been completed, this is what customers need to do (Vilaggazdasag)

Russian President Vladimir Putin tells Hungary what would happen to price of Russian oil and gas due to Iran war - entire EU is watching with envy (Vilaggazdasag)

It would be unprecedented move for government to try to postpone April election (Heti Vilaggazdasag)

Political analyst Gabor Torok: Fidesz may have chance for majority even after narrow defeat (Heti Vilaggazdasag)

PM Viktor Orban on ATV: Western countries may have "GDP and growth", but in real life Hungary is in better position (Heti Vilaggazdasag)

We show you how much tax is in price of gasoline and where it could be reduced (Heti Vilaggazdasag)

Iran's lessons for Poland [count on yourself first, then allies; build up large fuel reserves and a strong domestic arms industry] (Rzeczpospolita)

Govt and LOT Polish Airlines to rescue tourists stranded in Middle East [just over 2,000 Poles seen as stranded; govt sending planes] (Gazeta Wyborcza)

Why can Iran survive the war with US and Israel? (Rzeczpospolita)

End of VAT loophole myths - govt won't gain billions [thinktank IFP puts VAT gap at 6.9% in 2025, compared with EU median of 6.5%, putting potential gains at PLN 1.5bn; VAT gap is strongly cyclical, though, and rises when growth is worse] (Rzeczpospolita)

CBOS's Marciniak: Korona's popularity is exaggerated (Gazeta Wyborcza)

It is not easy for local govts to attract investors (Rzeczpospolita)

• President brought in NBP's Glapinski to back idea of 'Polish SAFE 0%' but didn't specify precise financing mechanism
• President told presser the funds would not carry an interest rate or a long payback period
• Speculation has turned towards the NBP using some of its FX reserves for the operation
• But the broader idea must be read as part of the KO/PiS political battle over the EU

President Karol Nawrocki met NBP head Adam Glapinski on Wed. to discuss the idea of launching an PLN 185bn financing initiative to support defense investments and thus replace the EU's SAFE mechanism in a way that would supposedly be cheaper and safer for Poland, though the precise form of this financing was unclear [statement here]. Nawrocki said it would not involve interest rates and would not involve the 45-year maturity period. But he also said his office, the NBP, and the government would have to work together, and this appears to be a tip of the hat to the fact legislation will have to be passed. Speculation has immediately turned in Poland to the NBP using some of its FX reserves to finance the program, perhaps by selling some of its gold.

Glapinski said during the presser that the NBP's reserves were "the reserves of all Poles" and "Polish." He noted they were managed by the NBP Management Board. He was cautious, though, to stress that whatever path is chosen would have to be legal, and that might mean the NBP would support President Nawrocki in submitting a bill to the Sejm that would increase its ability to finance the defense buildup to a greater degree. Glapinski also underscored during the short Q&A that the financing under discussion did not mean reserves would be transferred to the government for defense purchases since this would violate the law. It would also not be similar to the COVID-era bond-buying program, he said. Glapinski said that perhaps it could be via the NBP's profit, 95% of which is transferred to the government. In the end, he said details would come later.

Much speculation has already hit that what might be considered is that the NBP would sell some of its gold portfolio, report a profit, and transfer some to the government. In late August, Professor Grzegorz Kolodko, who some will remember was a colourful finance minister in 1994-97 and 2002-03, floated the idea in August during a radio interview (RMF FM) in which he proposed ​​allocating a portion of foreign exchange reserves to military spending. Kolodko noted that the level of reserves exceeds levels guaranteeing Poland's financial security. Thus, Poland had "excessive" foreign exchange reserves at the same time as it had an "excessive" debt and deficit. Kolodko said some PLN 200bn should be used, thereby financing around 5% of GDP worth of spending.

The NBP's foreign-currency reserves amounted to PLN 1,038.6bn at end-January, of which gold is valued at PLN 314bn (the NBP will release the end-Feb figures on Fri.) (reserves here). That covers over 6 months of imports, which, to note, is above the 3-month minimum recommended by the IMF. The NBP is in the process of upping its gold stock from some 550 tons to 700 tons.

Still, critics of the idea note that Poland's ratings, which are already under pressure, are supported by the external balance, of which high FX reserves form a large part. Deputy PM and Defense Minister Wladyslaw Kosiniak-Kamysz said Wed. in response to the president's proposal that the EU's SAFE program was the best, fastest way to build up the military and that any other proposal should only supplement this. Others have slammed the idea of using currency reserves to effectively plug a budget hole. Centrist MP Ryszard Petru, who was once a chief economist, said that the president's proposal comprised "financial exoticism," contradicted EU law, and was dangerous. He added that the proposal was reminiscent of those floated many years ago by Andrzej Lepper [who some will remember].

The president's proposal is not timed accidentally. The legislative work on the bill that regulates SAFE was just passed completely by the Sejm and has or will soon land on his desk for a signature (the president has 21 days to decide after receiving it). He and the opposition Law and Justice (PiS) have criticised the SAFE program for having too many strings, being too costly, and for threatened Poland's close relations with the US. A "Polish SAFE 0%" program -- with the very title echoing PiS legislation implemented during its rule in 2015-23 -- would thus replace the EU's one no strings conditions attached. The entire matter is thus part of the ongoing political battle between the government and the president/PiS.

The Institute of Public Finance (IFP), a think-tank, has said usage of SAFE loans to fund defense industry investments would save PLN 36bn-60bn over the lifetime of the loans. The IFP noted that the interest rate for these loans is about 3.3%, which is below the usual 4.5-4.8% for loans from the state bank BGK. Deputy Finance Minister Hanna Majszczyk has noted that the SAFE cost is some 0.7pp lower than what the State Treasury could get or some 1.3pps lower than what BGK gets.

Overall, it is hard to judge this proposal with further details, but it is even harder to say anything without highlighting the political context. This is part of the president and PiS's fight against the Civic Coalition (KO)-led ruling coalition. The president/PiS don't want any larger EU programs since they are scared -- probably rightly -- that if PiS returns to power, the rule of law question will quickly return and EU money could be delayed. That the government will just drop the EU's SAFE is also fanciful, and it is rather more likely that the government will hammer publicly the president for not signing. The majority of Poles believe the president should sign the legislation.

But there is also the question of how the NBP will help provide the financing. If it injects PLN 185bn into the economy, that will have its own economic impact, and possibly help fuel inflation. Any perception that the NBP is taking a political side (maybe again) and engaging in financial exoticism, if that is right, might also hurt Poland's credibility, thereby weakening the zloty, boosting existing and future borrowing costs, and potentially having massive negative effects. The zloty would seemingly be vulnerable anyway since much of the money would likely be spent abroad, say in USD for American weapons (though the latest reports suggest these might not be so plentiful going forward). The EU's SAFE program carries fewer potential risks, and even the supposed conditions have been exaggerated for political effect (PiS says the program is designed to make Poland more dependent on Germany).

In the end, it remains to be seen what sort of program will arise. If or when something with more detail is announced, we imagine the government will push to have SAFE put in place and then perhaps a supplementary program to help out the budget. That could in fact help lower the deficit and reduce the pace at which debt is growing depending on how the financing is secured. The one thing to remember is that if the president and the NBP could implement a program by themselves, they would have already done so. Thus, any further moves down this road will depend on the government, which doesn't have any incentive to undermine the EU's SAFE program but might be open to steps that help public finances.

• PiS has criticized EU's SAFE program for having too many strings, moving away from US arms
• Glapinski says there are solutions\
• President Nawrocki talked of a 'Polish SAFE 0%' program

President Karol Nawrocki met with NBP head Adam Glapinski to discuss the NBP's support in helping devise a Polish alternative to the EU's Security Action for Europe (SAFE) initiative, from which Poland stands to receive EUR 44bn via low-cost loans for defense and security investments. The president now has roughly 21 days to decide whether to sign the government-backed SAFE financing bill, but has clearly listened to criticism of the SAFE program from the opposition PiS, which is close to both Nawrocki and Glapinski.

Echoing PiS criticism, Nawrocki reiterated previously expressed doubts about the SAFE program, including that its loans will be repaid through 2070 and potential conditionality. He also criticized the limitation on buying US weapons. Nawrocki said that he has been preparing for some time and discussed with Glapinski on Wed. a "Polish SAFE 0%" program. Glapinski said that it would be beneficial to find a "sovereign, safe, good, and effective" alternative to the SAFE program.

No official statements have yet been released on the matter by the president's office or the NBP.

Overall, Glapinski mentioned many times that the NBP was apolitical and independent, but his presence alongside Nawrocki to find a solution in keeping with PiS's view on the situation will not likely be seen as apolitical by the government. This does raise the threat that Glapinski will be drawn back into the political fray. If the government's move to bring Glapinski before the State Tribunal seemed dead in the water, perhaps it will be revived. There is also the question of Deputy NBP Governor Marta Kightley, a close ally of Glapinski at the NBP whose term expires on Mar 8. Glapinski has already asked the president to re-appoint her, but such a move requires the counter-signature of PM Donald Tusk, who might be more reluctant.

The loan also creates questions about how the NBP will potentially finance loans for defense and security and what this would mean for Poland's public finances. The SAFE loans are seen as a very low cost solution with a generous payback period. Other loans would likely have different terms, though it remains to be seen what is ultimately decided in this regard.

• Nawrocki to hold press conference at 17:00 CET
• Meeting is likely related to expiration of NBP mgmt board and Glapinski ally Kightley's term

President Karol Nawrocki has met on Wed. afternoon NBP head Adam Glapinski and will hold a press conference at 17:00 CET, according to information released by the presidency. No agenda for the meeting was given.

Overall, the meeting is probably related to Glapinski's current campaign of security a second term for a key ally on the NBP Management Board. First Deputy NBP Governor Marta Kightley's term expires on Mar 8 and Glapinski wants her to stay on. NBP management board members are appointed by the president, but the decision must be counter-signed by the PM. This has led to many Polish press reports about supposed deals between Glapinski and PM Donald Tusk about the issue. One report even said that Glapinski said interest rates would fall further, with the MPC defying on Wed. the inflation risks potentially triggered by the war in the Middle East to cut rates by 25bps to 3.75%, the lowest rate since March 2022. Glapinski has confirmed that he sent to the president's office a motion to have Kightley receive a second term.

• Next MPC meeting: Apr 8-9, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: The Monetary Policy Council brushed off the potential inflation risk generated by the conflict in Iran and cut rates by 25bps at its Mar 3-4 sitting, but the outlook is obscured by the fact it did go through with that cut, the potential inflation risks from the war in Iran, and the uncertain impact of an inflation basket reweighting. For now, we see the MPC holding fire at the next sitting on Apr 8-9, but much will depend on how long the war lasts as well as how NBP and MPC chair Adam Glapinski responds to the new risks at his presser to be held on Thurs. at 15:00 CET.

The MPC might remain dovish due to the new inflation projection. Though its cutoff date was before the attacks, the projection does see inflation at below the 2.5% y/y central target for the entire policy horizon, which was extended to 2028. Inflation is to be 2-2.5% for that period. In light of the fact most MPC members say a real rate of 1-1.5% is best, this might open the door to one more quick 25-bp cut, especially as nearly all MPC members have also indicated 3.50% is the short-term target rate.

But of course the MPC might believe the inflation outlook is benign enough for the March cut, but then take a more cautious stance for Q2. If the war doesn't end quickly, then perhaps the council pauses in April. The average projections also did not show inflation under the target and that could mean the MPC might start seeing a key rate of 3.75% as being preferable to 3.50% as the higher rate would give the council more room to move in the future whereas 3.50% might be too low if inflation did jump up to 3% or so on the back of the war.

The stats office GUS will release the new inflation basket for 2026 on Mar 13, publishing at that time the revised inflation print for January and the February print. Alongside the new basket, GUS is also implementing a new classification system. The HICP data for January showed that the other category has been split into two and several areas were moved around. It is unclear if the CPI will be similarly impacted. Yet, this does create uncertainty for the April rate decision, particularly as revisions in 2025 proved to be impactful and brought forward then expected rate cuts.

Overall, the MPC might cut again in April, but the outlook is very murky at this stage. Glapinski's comments will thus be even more crucial than usual, though much too will depend on developments in the Middle East.

MPC's post-sitting statements

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• MPC approves new projection showing at target inflation through end-2028
• New GDP projection raises outlook for 2026 and 2027, sees solid growth
• New projections likely don't directly factor in Iran attacks due to Feb 19 data cutoff
• NBP's Glapinski to explain decision further at Thurs. presser

The Monetary Policy Council said it cut its key rate by 25bps to 3.75% on Wed. on the basis of the latest inflation developments and taking into account the inflation outlook for coming quarters, according to its post-sitting statement that included the updated ranges for the CPI and GDP projections. The MPC did not directly refer to the impact of the latest attacks on Iran, saying only that "the outlook for global activity and inflation is subject to uncertainty, related, in particular, to geopolitical situation." We had thought that inflation risks from the war via oil and gas prices and a weaker zloty might lead to a pause at the meeting, though the broader benign inflation outlook clearly meant there was still a decent chance of a cut.

The updated CPI projection lowered the inflation mid-points for 2026 and 2027 and extended the horizon to 2028, which is to see average inflation of 2.45%, or just below the 2.5% central inflation target (with a +/-1-pp fluctuation band). For 2026, the new range is 1.6-2.9%, giving a mid-point of 2.25%. That is down 0.7pps from the mid-point of 2.95% in the previous November projection, which had a range of 1.9-4.0%. For 2027, the mid-point was cut by 0.2pp to 2.40% (range: 1.1-3.7%) from 2.60% in November (range: 1.1-4.1%). The new projected range for 2028 is 0.9-4.0%, giving the aforementioned mid-point of 2.45%. This means that the entire inflation horizon is to see inflation below the 2.50% central target, and that likely did a lot to secure the cut at the March sitting. The data cutoff date was Feb 19 and that means the impact of the latest conflict in the Middle East were not factored in, though the MPC felt the impact was not likely to be sufficient to forestall a previously well-telegraphed cut.

For GDP, the projection was upped by 0.25pp for 2026 and 0.30pp for 2027. The new range is 3.1-4.7% for GDP growth in 2026, giving a mid-point of 3.90%. That is up from 3.65% in November (range: 2.7-4.6%). For 2027, the new range is 2.0-3.8%, generating a mid-point of 2.90%, which is up from 2.60% in November (range: 1.5-3.7%). Growth is expected to pick up in 2028, with the mid-point at 2.95% on a growth range of 1.8-4.1%.

The MPC made a notable comment on wage growth in January, which it said "was markedly lower than in the previous month." The council is very sensitive to wage numbers and it is likely this "marked" slowdown helped the MPC look past the trouble in the Middle East and the potential inflation impact on Poland.

In terms of risk factors, the council mentioned fiscal policy, the expected recovery of demand in the economy, further developments in wage growth, and the macroeconomic situation abroad, including changes in global commodity prices and inflation amid geopolitical tensions. It did not mention energy prices or directly talk about fuel or natural gas.

Overall, before the attacks on Iran, a rate cut in March was probably 95% certain. We had thought the impact of the attacks on gas prices in Europe, fuel prices, and the zloty would lead the MPC to pause, especially since there is more uncertainty regarding inflation due to the annual basket reweighting. But the MPC clearly decided that the outlook for low inflation was strong enough that even a potential boost from fuel or other factors due to the conflict was not sufficient to stop a cut in March.

Nearly all MPC members have talked of cutting the key rate to 3.50% and most saying this will happen by end-H1. NBP head Adam Glapinski's comments at his Thurs. presser will thus be key to whether the war impact will lead to a more cautious stance for Q2 or whether the MPC believes inflation is low enough that the key rate can be cut relatively quickly. One factor always is that most MPC members say the real rate should be around 1-1.5pps. If inflation threats do really arise, then perhaps the MPC will go back to a wait-and-see stance after its March cut. Only if inflation is forecast to remain around 2-2.5% is the MPC likely to cut again in Q2.

Question:

Would it be correct to assert that gas prices, as measured in CPI, will not be affected at all by the recent sharp rise in wholesale gas prices in Europe given that the tariff was already set by the URE back in December?

The question was asked in relation to the following story: Market turmoil including zloty selloff likely to make MPC much more cautious

Answer:

The direct impact of higher gas prices won't immediately impact CPI inflation. The household natural gas price has two main components: the tariff for the gas itself and the tariff for gas distribution. The former is on hold to end-H1 2026 while the latter was lowered slightly in January. That does mean there should be no immediate impact on household gas prices.

But gas costs for companies are deregulated and so it is still possible that if companies take on much higher prices, you could have a knock-on impact on consumer prices. There could also be a situation where the gas companies motion the regulator to change consumer prices early, though I imagine this would only happen if any price rises are sustainable.

As Gas System, the operator, said recently, the heating season is nearly over. The weather has warmed up a bit after a cold January and February, and gas stocks are about 50%, which is said to be high for this time of year.

In the end, much will depend on how long the shock lasts and that is unclear at this stage.

• Energy Minister Motyka says he still hopes situation returns to normal soon

Energy Minister Milosz Motyka said Wed. that the supply of natural gas and oil to Poland was not threatened by the war in Iran, according to comments cited being made to news agencies during an event. Motyka said that no oil that flows to Poland goes through the Strait of Hormuz, meaning problems there don't directly impact Poland's supply. Qatari natural gas has been cut off, but Motyka said that Poland could easily and quickly replace it with other sources. Motyka did also note that everything would depend on how long the conflict in the Middle East lasts.

Motyka also said that Poland's supply portfolio was very diversified, especially since its gas storage facilities were still over 50% despite record demand for gas this winter. He added that it is also likely that oil demand won't grow as much as will supply.

The Wysockie Napiec ('High Voltage') website noted Tues. that Qatar's importance for Poland has waned in recent years. There is a contract with Qatar to supply some 2.7bcm of gas a year by 2034, but in 2025 this total amounted to 2bcm, which is about 10% of Poland's annual consumption. That is significant, but can also likely be made up. The website added that the gas tankers operated by Orlen, the state-controlled oil and gas giant, were not trapped on the wrong side of the Strait of Hormuz and are operating as normal, meaning they could pick up gas elsewhere. The US is the biggest supplier of gas to Poland.

Still, the website did note that gas prices rose by 40% on the Polish Energy Exchange (TGE). This won't impact household gas prices in the short term since the regulated gas distribution tariff for households was just lowered slightly in January and the regulated tariff for the cost of gas itself is in place until end-H1. In terms of the consumer level, gas prices should not thus rise unless the wholesale gas price remains elevated through the tariff-approval process for gas itself. The energy regulator URE should set the new gas tariff in mid-June.

In terms of fuel, the impact of the war in Iran is more immediate. Orlen has already upped its wholesale prices of fuel. The daily Gazeta Wyborcza noted Wed. that the price of diesel could even hit PLN 7 a litre, which is well up from PLN 5.92 a litre last week. The basic unleaded petrol price is seen at PLN 5.90 or so, or up from PLN 5.67 last week. If such prices were actually seen in March, the fuel index in CPI inflation would go from the pre-war forecast of -7.6% y/y to -1.4%, with the impact on CPI inflation about +0.3pp.

Overall, despite the turmoil for drivers, Poland appears relatively well set with no shortages of fuel or gas expected unless the conflict goes on for many months. The duration of the conflict is key too for gas tariffs going forward, but the URE won't set the new tariff until June and that does give a lot of time for prices to return to their pre-war levels. The Monetary Policy Council clearly didn't think the inflation risks are elevated since it decided to cut rates by 25bps on Wed. no matter the increase of uncertainty. That is likely because inflation forecasts are benign enough that even a slight rise in inflation from war-related factors aren't expected to stoke inflation too much.

• Post-sitting statement to be published at 16:00 CET
• Glapinski to hold his presser on Thurs. at 15:00 CET to explain

Poland's Monetary Policy Council decided Wed. to brush aside inflation risks triggered by the invasion of Iran and cut its key rate by 25bps to 3.75%, according to a statement. This is the first cut since December and brings the scale of easing since the "cycle" started in May 2025 to 200bps. The MPC will publish its post-sitting statement at 16:00 CET and release details of the updated CPI and GDP projections that were approved at the sitting. MPC head Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the move beyond the usually brief post-sitting statement.

Data Download

Overall, we believed the MPC would be more cautious due to the potential inflation risks ensuing from the US/Israel attacks on Iran, which weakened the zloty and led to much higher natural gas and fuel prices. There is also heightened data uncertainty since the stats office GUS is in the midst of its annual inflation basket reweighting process, but won't release the updated basket until Mar 13, meaning the MPC doesn't have updated inflation data and won't know how the basket will impact headline inflation rates, particularly as this year is to see an updated classification system as well. But prior to the recent attacks, all MPC members spoke of a benign inflation outlook and this was obviously dovish enough to allow the MPC to look past the conflict in the Middle East. The MPC is in position to cut by another 25bps by end-H1, but the timing of this move is unclear. If the inflation basket doesn't change the picture and the Middle East war ends soon, the MPC could be in position to cut quickly, though other scenarios are clearly possible as well.

• Non-sa jobless rate rises to 3.5% in the month from 3.2%
• FinMin Domanski highlights that rate is lowest in all of EU

Poland's EU-harmonised unemployment rate edged down to 3.1% in January from 3.2% in December, according to seasonally but not calendar-adjusted Eurostat data published Wed. The jobless rate rose 0.1pp y/y from 3.0% the year before. The seasonally adjusted unemployment number was 563,000 in January, falling from 567,000 in December but rising from 535,000 the year before.

Finance Minister Andrzej Domanski commented on the data on Wed., highlighting that the 3.1% rate is the lowest level in the entire EU, according to a post on X.

The non-adjusted unemployment rate rose 0.3pp m/m to 3.5% in January, hitting the highest since February 2025. The unseasonally adjusted jobless rate remains well below the 6.0% registered unemployment rate reported for January by Statistics Poland (GUS) on the basis of labour office data. The unadjusted Eurostat-reported unemployment total was 622,000, compared with a registered unemployment total from GUS of 934,100 for January.

In terms of accurately showing unemployed workers seeking jobs, the Eurostat data are probably better than the GUS data. The jobless rate there includes anyone from 15 to 74 without work, available to start within 2 weeks, and who has actively looked for a job in the previous 4 weeks. The local figure reported by the Central Statistical Office defines the unemployed as those 18-60 (women) or 18-65 (men) who have registered as unemployed within the previous 12 months and doesn't receive income totaling more than half the minimum or are not on family or pension subsidies.

• Government cuts OTV up to 75% of post-Mar 2 refinery-gate price increases
• It raises OTV up to 75% of declines, capped at Mar 2 level
• Extreme oil spikes drain roughly 3.3% of annual budget revenues

The finance ministry temporarily reactivated the fuel price smoothing mechanism, aka smoothing scale mechanism, to curb the inflationary spillover from geopolitically driven oil price gains and to soften the impact on household budgets, the finance ministry said. The framework took Mar 2 as the reference date and applied from that point forward across selected petroleum products, linking excise adjustments to subsequent refinery-gate price movements, it indicated.

Under the decision, if prices for the covered fuels increased after the reference date, authorities reduced the special consumption tax (OTV) by up to 75% of the price increase. If refinery-gate prices fell due to declines in crude oil prices or the exchange rate, the state could raise the OTV by up to 75% of the realised decrease. Any upward tax adjustment remained capped and could not exceed the OTV level that applied on Mar 2, which effectively limited the scope for tax normalisation during downturns, the ministry said.

In our earlier reports, we flagged the necessity of such an offset mechanism. The current design differed from the 2018 practice, when the full amount of the OTV reduction had been used to offset pump-price increases, we note. Therefore, we expect the 75% band to deliver a smaller disinflation impulse than the earlier version, while noting that the Treasury did not publish an impact assessment, leaving the official fiscal sensitivity undisclosed.

According to market talks, each 10% rise in oil prices implied roughly TRY 12bn per month in foregone OTV revenue under a full offset, which translated to around TRY 9bn per month under the 75% application, we assess. In a benchmark scenario featuring a 50% oil price increase, we estimate the monthly revenue shortfall to be near TRY 45bn, or about TRY 540bn on an annualised basis. Compared with the 2026 budget revenue projection of TRY 16.266tn, the estimated hit of TRY 540bn equalled roughly 3.3%, we underline. However, these are not official estimations so needed to be treated with caution.

Parliament speaker Numan Kurtulmus: Parliament has determination to solve Turkey's difficult problems (Hurriyet)

Justice minister Akin Gurlek: We will continue to implement reforms with determination (Hurriyet)

President Erdogan warns about downed missile: We are making our warnings in clearest terms so that same incident does not happen again (Hurriyet)

Two Turkish journalists detained by Israel are released (Hurriyet)

CPI-based real effective exchange rate (REER) rises by 1.02% m/m in February (Sozcu)

Turkey's first national high-speed train will hit test tracks on Friday (Sozcu)

Taxi fares increase in Ankara (Sozcu)

Trade minister Omer Bolat: Turkey is in top 3 in growth race (Sabah)

Labour minister Vedat Isikhan: Businesses that maintain their number of employees will receive TRY 50mn support (Sabah)

Turkcell and ULAK take joint step towards 6G (Sabah)

Energy minister Alparslan Bayraktar: Turkey plays strategic energy hub role for North American LNG (Sabah)

• Headline inflation reaches 31.5% y/y while core price indicators show improvement
• Annual services inflation falls to 39.7% y/y and core goods prices drop
• Harsh weather and Ramadan factors push food prices up 6.9% m/m

Headline CPI increased by 2.96% m/m in February, lifting annual CPI inflation by 0.9pps to 31.5%, the CBT said in its monthly price developments report. Despite the rise in headline inflation, underlying measures eased, as the annual change in the B index fell by 0.2pps to 29.9% and the C index were down by 0.3pps to 29.5%, signalling a modest improvement in core dynamics, the CBT said. D-PPI, on the other hand, rose by 2.43% m/m in February, taking annual domestic PPI inflation up by 0.39pp to 27.56%, it added.

The monthly pace of consumer price gains remained broadly flat compared to the previous month in seasonally-adjusted terms, it mentioned. Similarly, inflation excluding food slowed, indicating that the renewed pressure in the headline mainly stemmed from food-related drivers rather than a broad-based re-acceleration, it highlighted. Service inflation was up by 3.2% m/m in February, while annual services inflation fell by 0.6pps to 39.7%, the report underlined. Annual inflation increased in communication and in the other services category, yet it declined across the remaining service sub-groups, reinforcing the view that services disinflation continued, albeit unevenly, it stated.

Core goods provided clear relief, as prices in the main goods category declined by 1% m/m and annual inflation fell by 0.88pp to 16.6%, it indicated. By contrast, prices in food and non-alcoholic beverages rose by 6.9% m/m, pushing annual inflation up by 4.8pps to 36.5%, according to the report. The increase reflected broader strength across both processed and unprocessed food, with more pronounced pressure in unprocessed items; adverse weather conditions and Ramadan-related seasonal factors also weighed on food pricing, it highlighted.

• NATO batteries down incoming missile before it reaches Turkish airspace
• Hatay debris confirms interceptor fragments, officials report zero casualties, tight coordination
• Incident shatters long-held assumption that Iran would never strike Turkish soil

NATO air and missile-defence assets deployed in the eastern mediterranean had intercepted and neutralised a ballistic projectile that was assessed to have been launched from Iran, transited Iraqi and Syrian airspace, and then headed toward Turkish airspace, Turkey's defence ministry reported. Debris that fell in Hatay's Dortyol district was identified as a fragment linked to the air-defence interceptor used during the engagement, the ministry said. Authorities did not report any fatalities or injuries and they framed the episode as evidence of sustained readiness to protect Turkish territory and airspace while maintaining close consultation with NATO and other partners to prevent further regional escalation.

We think that the uncontrolled groups in Iran perhaps targeted the Incirlik Air Base in Adana, which many people referred to as a US base. However, to the best of our knowledge, Incirlik is a Turkish installation under the command of a Turkish officer. While it hosted elements of the US Armed Forces, it also accommodated personnel from several other NATO member states and partner nations, including Poland and Spain, as well as Qatari forces. Following the attempted coup on Jul 15, 2016, most heavy US weaponry was removed from the facility and Turkey retained sovereign authority over its use, we note.

Overall, we think the incident dismantled a long-standing assumption that Iran would never strike Turkish territory, a calculation built on NATO deterrence based on Article 5, Ankara's assurances that Incirlik would not serve against Tehran, and the belief that Iran had no interest in provoking Turkey. With the recent act, these pillars seemed to collapse simultaneously. The deterioration of centralised command structures inside Iran heightened the risk of unauthorised military actions by uncontrolled factions, we caution.

Nevertheless, absent a serious Iranian-origin strike that caused Turkish casualties, we do not expect the government to mount a direct military response at this stage.

• Food prices rise relentlessly as fresh produce inflation rises by 21.7% cumulatively over two months
• Broad-based stickiness grips services, rent and processed food categories all at once
• CBT faces zero room to ease, credible disinflation demands steady monetary tightening, in our view

Seasonally-adjusted inflation rose 2.8% m/m in February, state statistical institute Turkstat data showed. The last three months' annualised average climbed to 32.5%, nearly twice CBT's 16% year-end target, we underline. Similarly, Core B strengthened by 2.4% m/m and Core C by 1.8% m/m, while their three-month moving-average annualised readings stayed elevated at roughly 29.8% and 27%, respectively.

Data Download

Services inflation rose by 2.7% m/m in February, led by telecommunication services at 8.7% m/m. Rent and other services also posted firm increases. Goods inflation printed 2.8% m/m. Within the basket, fresh fruit and vegetables surged by 10.4% m/m. Over the past two months, this specific category has racked up a strong 21.7% cumulative increase, we note. Processed food also strengthened, up by 5.2% m/m. By contrast, goods excluding energy and food remained comparatively restrained at 0.9% m/m, which which we think indicated that tighter credit conditions are finally forcing consumer demand to cool across non-essential retail segments.

From a monetary policy angle, this still reads like a 'hold tight' backdrop, in our view. In other words, the CBT has no credible basis to ease anytime soon. The disinflation narrative that gained traction late last year has, for all practical purposes, hit a wall, we think. What matters here is not just the headline numbers but the breadth of the pressure - it is not one rogue category dragging things up. Instead, it is food, services, and rent all moving in the wrong direction simultaneously, we note. That kind of synchronised stickiness does not resolve itself quickly, we caution. The CBT has to kill this momentum before it bakes into permanent expectations and rate cuts need to be off the table, we think. Instead, the board needs to signal a solid commitment to tight money. It might even have to squeeze liquidity harder until it sees undeniable proof that consumer demand is finally tapping out.

• CPI-deflated REER rises m/m, yet cumulative nominal depreciation keeps TRY undervalued y/y
• D-PPI-deflated REER holds a 2.9% y/y deficit, sustaining export competitiveness on cost side
• Middle East tensions stack multiple FX pressure channels, straining CBT's reserve buffer fast

The CPI-based real effective exchange rate (REER) gained 1.0% m/m in February, the CBT data showed. Despite this monthly uptick, the CPI-deflated REER still registered a 1.3% y/y drop. This indicated that cumulative nominal depreciation over the past year has outpaced the inflation differential with trading partners, keeping the currency relatively undervalued on an annual basis. Similarly, the D-PPI-deflated REER strengthened by 0.2% m/m. Yet, it maintained a 2.9% y/y deficit. In our view, this signalled that producer price dynamics still offer a competitive edge for exports y/y, even as short-term input costs pressure monthly margins.

Data Download

In the near-term, we expect a controlled weakening due to the recent tension in the Middle East, which increased oil prices and the risk premium, and can hit through tourism and logistics revenues, capital outflows, renewed dollarisation, and corporates scrambling to close open FX positions, we underline. If we combine these specific vulnerabilities under practical assumptions, the financing need could rapidly swell, putting pressure on the CBT's reserve buffer, we caution.

War in the Middle East: warnings from six international banks about Argentina's economy (La Nación)

Juan Bautista Mahiques replaces Cúneo Libarona as new Justice minister (Clarin)

Karina Milei projects her power in the courts: the gateway to appoint judges and a new political operator (La Nación)

Auto production: February marked its seventh consecutive decline, contracting 30.1% y/y (Ámbito)

Southern Energy and German company SEFE signed eight-year LNG sales contract in Berlin (EconoJournal)

BlackRock-led consortium agrees to purchase power generator that won multi-million-dollar ICSID case against Argentina (EconoJournal)

War in the Middle East: key farm input [urea] jumps USD 100 per ton (Clarin)

Trump administration intervenes to help Argentina in YPF trial (Clarin)

• Sides enter 8-year Sales and Purchase Agreement, deliveries set to start late-2027
• Deal takes more than 80% capacity of first FLNG vessel hired by Southern Energy

The local consortium Southern Energy, formed by almost all of the big players in Argentina's oil and gas sector, signed an 8-year, 2mtpa LNG offtake deal with Germany's SEFE Securing Energy for Europe, according to a press release. A framework for this deal was signed last December, and the sides now entered a Sales and Purchase Agreement. Deliveries are still expected to begin in late 2027.

The volume of this agreement covers more than 80% of the 2.45mtpa capacity of the first FLNG vessel hired by the Southern Energy consortium, which is set to arrive on Argentina's coast in mid-2027. A second vessel, which will take combined nameplate capacity to 5.95mtpa, will arrive in 2028. Southern Energy is a consortium formed by Argentina's main local oil and gas players, Norway's Golar LNG, and the London-based Harbour Energy.

Argentina has a second and larger LNG project that aims to reach a final investment decision by end-2026. This is a project in which the state-controlled YPF is partnering with ENI and ADNOC's XRG to produce and export at least 12mtpa of LNG.

• Macro-financial risks would increase for Argentina in a risk-off environment given its acute external imbalances
• But Argentina has not been relying on private external financing, can't it keep muddling through?
• Argentina is a USD 10bn net energy exporter, higher prices help in short term
• Appetite for supply derisking can help nascent oil, gas, and metal mining boom, but private sector needs external financing

Note: This is one of our stories looking at the impact of the war in the Middle East on specific EM economies. In order to highlight vulnerabilities, we assume a risk scenario where the conflict is not resolved quickly, and risk premia/infrastructure damage/Hormuz Strait closure keep oil prices around USD 100 throughout 2026, resulting in an energy price shock similar to the one in 2022.

It is easy to see why a sustained large-scale conflict in the Middle East that leads to a prolonged risk-off event would complicate the macro-financial outlook for Argentina, since it is an economy with severe external imbalances and vulnerabilities. When the environment becomes risk-averse, Argentina is usually one of the first risks to be shed. However, the particularities of this conflict, in how it affects energy prices and supply, and how its timing matches with developments in Argentina, creates some interesting nuances and opportunities for the country.

External risks

A priori, Argentina's external imbalances make it an obvious candidate to be marked in the "losers" column whenever there is a global risk-off event. Net FX reserves are around zero, sovereign debt is mostly FX-denominated, the REER looks too strong in part due to policy decisions, and the current account is around zero. Prolonged risk aversion would make it hard for the government to refinance external debt through the market, increasing pressure on low reserves and potentially the exchange rate. Currency depreciation and a subsequent increase in inflation would increase political regime change risks, and compound the debt sustainability problem.

Risks increase for Argentina in a risk-off environment; there is no question. However, even though the external imbalances are there, it could be argued that Argentina is not in as bad a position to surf through a sudden stop as a simple look at these external imbalances would indicate. After all, Argentina is coming off several years with a closed BoP and hasn't been relying on external financing all that much, even under President Javier Milei. Thus, the counterpoint, in very broad terms, would be: if the Milei government made it this far in stabilizing Argentina's macro without really accessing global financing for any significant amount, would it really hurt that much for markets to be closed off for another year or two?

The sovereign's FX financing needs for 2027 look similar to the financing needs for 2026 [see table below], which the government was already intent on covering without tapping foreign markets. Payments to IFIs rise the most over the next couple of years, in particular payments to the IMF. For these cases, it is fair to wonder if the government's strong geopolitical alignment with the United States would help negotiate a refinancing that keeps net payments at zero or close. The central bank does have FX obligations of its own, mainly tied to USD 6.0bn worth of repos with banks that mature in January and April of 2027.

The options to finance external debt obligations without relying on foreign market issuance would be to buy USD in the spot market, issue domestic USD-denominated bonds, and privatize public companies. These are things the government has already been doing, and Economy Minister Luis Caputo hinted recently that privatization income will be higher and arrive faster than what the market seems to be expecting. The continuation and success of these financing options depend in part on whether policymakers can keep making it attractive to formalize USD savings that are outside of the financial system.

One important element for this counterpoint to be valid relates to currency depreciation. Over the past two years, the government was able to pay down external debts and also sell USD to closely control the exchange rate when needed, without accessing market financing. It was able to do so in part thanks to net financing from the IMF and a large buffer of private sector USD savings coming into the financial system. If the sources of fresh USD the government could tap get tighter moving forward, there should not be space for the government to oppose currency depreciation to the extent it did in 2024-2025. If the government goes from accumulating FX reserves to selling USD to contain currency depreciation, it becomes less likely that the government can sustain debt repayment in the event of a prolonged risk-off event. Moreover, we believe moderate currency depreciation would be positive, helping the real economy in its ongoing structural shift.

Opportunities in oil, gas, and other commodities

In brief, Argentina recently became a net energy exporter and replaced most of its energy import needs. The country is going through a nascent oil and gas boom, and on the verge of starting a metal mining boom as well. These processes can benefit massively due to rising commodity prices and supply derisking initiatives, but also require external financing to materialize.

In terms of the direct impact higher oil prices have on the current account in the short-term, Argentina benefits. The country had net energy exports of USD 7.8bn in 2025, and even before the Iran conflict the expectation was that this would rise to USD 10bn in 2026.

More importantly, Argentina's oil industry is going through a multi-year investment plan to achieve exponential growth in oil and gas output and exports. Many big projects are already underway and have financing, such as the construction of Argentina's first oil pipeline leading to very large crude carriers. Many others, like Argentina's largest LNG project, are exploring project financing and offtake options. It's hard for us to say if the Iran conflict influences final investment decisions when the impact on oil prices can be assumed to be transitory. However, the repetition of oil and gas supply chain disruptions grows Argentina's appeal as a potential supplier for countries looking to derisk their energy purchases for the future. Thus, there are obvious benefits for Argentina's oil and gas industry from the Iran conflict, but the bigger question is whether the financing needed for these big oil and gas projects will be there in an environment of risk aversion.

The story is similar for Argentina's copper, gold, silver, and lithium mining projects. Higher commodities and desire to derisk supply help make the local projects more attractive in many ways, but generally adverse global financial conditions could make it hard to get these projects off the ground.

Domestic oil and gas prices

The conflict will create pressure on domestic energy prices, but government intervention will limit the pass-through. The head of the state-controlled YPF, Argentina's market-leading fuel retailer, has already said the company has a price smoothing mechanism and it will probably take a few months for prices to rise in a noticeable way. The federal government still has control over electricity and natural gas prices to households, and authorities are likely to bet on a very gradual and even partial pass-through to limit pressure on the CPI.

[Banco Master owner] Vorcaro ordered threats against journalists, former employees, and competitors, say Federal Police (CNN Brasil)

Federal Police say BCB officials received monthly payments from Vorcaro to help Banco Master circumvent oversight (Estadão)

Vorcaro planned 'assault' to 'violently harm' journalist Lauro Jardim (O Globo)

War in the Middle East: Lula calls on global leaders to work for peace, criticizes arms race, and laments loss of credibility of UN (G1)

Lula advocates negotiated solution between workers and companies for changes to the 6x1 shift pattern (Folha de São Paulo)

Lula says he is 'very lucky' and asks people to vote for those who are 'lucky' (Poder360)

Security Constitutional Amendment Proposal: government and [Speaker] Motta agree to remove reduction in age of criminal responsibility (UOL)

Senate approves trade agreement between Mercosur and the European Union (Carta Capital)

• Federal Senate follows lower house and okays EU-Mercosur trade deal at extraordinary pace
• Lula to ratify the agreement and deal to provisionally enter into force as decided by the EU

Brazil's Federal Senate approved Wed. the free trade agreement between Mercosur and the European Union and forwarded it to President Lula da Silva for ratification. The Senate's approval follows that of the Chamber of Deputies on Feb 25. It also follows the government's decree regulating bilateral safeguard measures under trade agreements, which protect the national economy in the event of an abrupt increase in exports subject to investigation by the Foreign Trade Chamber under the Ministry of Development, Industry, Commerce, and Services (MDIC).

Overall, Brazil's Congress approved the EU-Mercosur trade agreement in two months, which is significantly faster than the typical timeline of two to four years. This haste reflects the government's prioritization of the deal and broad parliamentary support. Following ratification by Lula, the agreement will enter into force between those Mercosur members that have already ratified it (Argentina and Uruguay besides Brazil) and the European Union, as permitted under the agreement. The EU has decided to provisionally apply the agreement while the Court of Justice of the European Union (CJEU) verifies its legality. The provisions entering into force provisionally relate only to trade, as other areas require approval by each EU member state. Mercosur countries will remove 91% of their tariffs on EU products over the next 15 years while EU countries will eliminate tariffs on 95% of Mercosur exports within the next 12 months, creating one of the largest free trade areas in the world even as other parts of the world choose or prefer protectionism.

• Sales rise slightly after falling in Jan
• Sales rise 8.6% m/m in Feb from 170,530 in Jan

Total automotive sales, excluding motorcycles, rose 0.1% y/y to 185,150 units in February following a 0.4% decline the month before, according to data released Wed. by the National Federation of Automotive Vehicle Distribution (Fenabrave). On a monthly basis, sales rose 8.6% m/m from 170,530 units in January after a 39.0% decline the month before. February had 17 working days, which is fewer than 21 days the month before.

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Passenger cars, which accounted for 75.9% of all sales in February (up from 73.4% in January), rose 4.3% y/y in the third consecutive increase, while light commercial vehicle (LCV) sales fell 7.2% in its first decline after two consecutive increases. Truck sales fell for the 22nd consecutive month, falling 24.5% y/y, and bus sales fell 24.9%, marking its ninth consecutive decline. On a monthly basis, only LCVs posted a decline, while all other segments saw output rise m/m.

Overall, new vehicle sales delivered a positive annual result in February despite fewer working days, though volumes remain broadly stable relative to last year. Fenabrave said the outcome highlights the sector's resilience and adaptive capacity in a restrictive monetary environment. That said, tight credit conditions continue to constrain demand. Even with the anticipated start of monetary easing, financing conditions are likely to remain restrictive in real terms, hindering the sector's growth going forward.

• Energy-driven inflationary pressure is unlikely to prevent start of rate cuts in March, but could affect size of first move and total easing cycle
• Higher oil prices may also, however, boost fiscal revenues and support the 2026 primary surplus target of 0.25% of GDP
• Issue reinforces political polarization between Lula and Flávio Bolsonaro, but likely to have marginal electoral impact relative to domestic concerns

[Note: This is one of our stories looking at the impact of the war in the Middle East on specific EM economies. In order to highlight vulnerabilities, we assume a risk scenario where the conflict is not resolved quickly, and risk premia/infrastructure damage/Hormuz strait closure keep oil prices of potentially even approaching around USD 100 throughout 2026, resulting in an energy price shock similar to that seen in 2022.]

The Middle East conflict and its economic spillovers are unlikely to prevent the BCB's Monetary Policy Committee (Copom) from initiating rate cuts in March, in our view, but they could still influence the magnitude of the first cut and the overall size of the easing depending on how the conflict evolves. At this stage, we believe it is still premature to assume an abrupt shift from the guidance provided at the January meeting. Nevertheless, heightened external uncertainty may warrant a more cautious pace of monetary easing. Higher oil prices would exert upward pressure on Brazil's imported inflation and generate second-round effects through transportation and logistics costs. That said, it remains too early to assess the effective pass-through to domestic inflation particularly given that the exchange rate has been more favorable than the level assumed in the BCB's baseline projections.

Beyond monetary policy implications, Brazil -- as a major oil producer -- could also benefit from higher international crude prices. Increased oil revenues may strengthen fiscal accounts and support the government's 2026 primary surplus target of 0.25% of GDP. Additionally, elevated oil prices could contribute positively to this year's primary balance dynamics. The government projected the price of a barrel of oil at USD 64.90 in 2026, according to the Budget Guidelines, and oil prices are now well above this level. If they approach USD 100, then the budget will gain, though inflation will also rise.

In terms of the impact on politics during this, an election year, the Brazilian government issued a statement condemning and expressing concern over the US and Israeli strikes against Iran, calling for respect for international law. While the note is broadly consistent with Brazil's diplomatic tradition -- historically grounded in the peaceful resolution of disputes and adherence to international legal norms -- the issue may migrate into the domestic political arena and reinforce the existing polarization between left and right. Right on cue, Senator and right-wing presidential pre-candidate Flávio Bolsonaro criticized the government's statement as unacceptable and defended a closer alignment with Washington and Tel Aviv. While the debate could influence voting intentions among more religious constituencies, domestic issues currently appear more salient -- including the investigation involving Banco Master and rising public security concerns -- which are likely to command greater voter attention. Potential inflationary pressures could, however, harm President Lula da Silva's reelection bid in October.

Overall, we continue to expect a 50-bp Selic cut at the Copom's March policy meeting, bringing the Selic rate to 14.50%, supported by ongoing economic deceleration and improved inflation forecasts. However, a more cautious 25-bp move cannot be ruled out in light of increased external uncertainty triggered by the attacks. Notably, in its January minutes, the Copom assessed that near-term external uncertainties had diminished, but that is an assessment that no longer appears valid. In our view, the Middle East conflict may ultimately influence the easing cycle over the medium to longer term by affecting its pace and terminal rate, potentially prompting an earlier end to forward guidance and reinforcing a more data-dependent approach to monetary policy decisions.

• Demand recovery supports strong services growth in Feb
• Expectations remain positive on publicity, legislative changes, investment, and the World Cup

The S&P PMI Global Services Business Activity for Brazil rose 1.8pts m/m to 53.1pts in February from 51.3pts in January, according to data released Wed. by S&P. The increase partially offset the 2.4-pt decline in February and kept the index above the 50-pt neutral mark for the fourth consecutive month. Companies attributed the improvement to demand recovery, which boosted new orders and allowed for an increase in employment after a fall the month before. Expectations remained optimistic for the next 12 months, mainly due to publicity, investments, legislation changes, new items, and the upcoming World Cup -- though it has remained below the long-term average.

Data Download

Input cost inflation fell to its lowest level in two years, but output price inflation rose to its highest level in three months. Companies cited higher labor and tax costs, as well as rising prices for chemicals, construction materials, food, electrical components, energy, paper products, and tires.

Overall, the services sector partially recovered from the losses recorded in January, likely reflecting the effects of government fiscal stimulus measures, such as directed credit and income tax cuts for some. The data are consistent with the government's projection of stronger GDP growth in Q1 2026. The resilience of the services sector suggests the BCB will likely remain cautious in calibrating its easing cycle, as services inflation continues to pose upside risks. Nevertheless, we do not believe the data are strong enough to alter the expected start of monetary easing in March and which we expect to see a 50-bp cut delivered.

• Federal Police arrests Vorcaro on suspicion of threatening investigators and opponents
• Two former BCB officials are also arrested on suspicion of accepting bribes from Vorcaro
• Arrest raises tensions over potential plea bargain that could implicate additional politicians

Federal Supreme Court (STF) Justice André Mendonça authorized Wed. the arrest by the Federal Police of Banco Master owner Daniel Vorcaro in a new phase of the investigation into the Banco Master fraud case. The arrest was ordered based on suspicions that Vorcaro sought to interfere with the investigation and intimidate opponents. The judicial decision also cites the existence of a criminal organization allegedly used to monitor and threaten adversaries, public officials, and journalists. A former director and a former staff member of the BCB, who had already been removed from their positions at the end of 2025, were also arrested on suspicion of receiving financial compensation in exchange for supporting Vorcaro within the institution.

Overall, this marks the first major action authorized by Justice Mendonça since STF Justice Dias Toffoli stepped aside as rapporteur amid pressure over a potential conflict of interest. Mendonça's decision suggests the case will now proceed under a more conventional procedural pace at the STF, following Toffoli's controversial rulings -- including limiting the Federal Police's access to case evidence -- which triggered a confidence crisis within the court.

Vorcaro's arrest heightens political tensions in Brasília by increasing the likelihood of a plea bargain that could implicate additional politicians in the alleged fraud and corruption scheme. Vorcaro maintained strong political connections and met with President Lula da Silva in 2024, although there is no evidence indicating Lula's involvement in the fraud. Indications suggest Vorcaro's ties were stronger among opposition figures, including with former President Jair Bolsonaro's former chief of staff Ciro Nogueira, who proposed a constitutional amendment to increase the coverage limit of the FGC (Credit Guarantee Fund) for financial investments -- an instrument allegedly used by Banco Master to attract funds by promising exceptionally high returns.

The outcome of the investigation remains uncertain, but Mendonça's stewardship is expected to lend greater institutional credibility to the proceedings and enable more pragmatic advancement. As a result, the likelihood of new disclosures involving politicians and questionable conduct increases, potentially causing disruptions in an election year. However, we recall that Mendonça was nominated to his seat by Bolsonaro, which could eventually prompt political pressures on the investigation.

• PPI narrows from -4.5% y/y in Dec, pressured by metallurgy prices
• PPI rises 0.3% m/m in Jan to mark second consecutive increase

PPI deflation narrowed to 4.3% y/y in January from 4.5% in December, marking the twelfth consecutive month of deflation, according to data published Wed. by the official stats office IBGE. On a monthly basis, PPI rose 0.3% m/m in January in the second consecutive increase that was driven by metallurgy prices (+2.7% m/m), namely non-ferrous metals. Other chemical products and mining also contributed positively whereas oil and biofuels exerted downward pressure on the index. Food prices had a limited impact on the monthly reading, falling 0.2% m/m in their ninth consecutive decline.

Data Download

On a monthly basis, two of the three major goods categories recorded increases in January. Intermediate goods prices rose 0.5% m/m and consumer goods rose 0.2% while capital goods fell 0.7%.

Overall, PPI saw its second consecutive monthly increase with these rises following a spate of ten straight prior declines, but it has remained in deflationary territory now for a full year. The IBGE said the food component remains the main contributor to annual deflation given its large weight in the index and its cumulative -9.8% y/y drop in January, reflecting Brazil's record 2025 harvest and BRL appreciation. This producer-level disinflation should support the Copom's anticipated Selic rate cut in March, which we continue to expect at 50 bps, taking the policy rate to 14.5% in what would be its first cut since April 2024.

Banxico will continue to cut its policy rate unless geopolitical conflicts prevent so (El Economista)

Treasury Certificates post mixed rates because of expected cuts by Banxico (Columna digital)

Headwinds for Banxico [gossip column] (El Universal)

Deputies receive Claudia Sheinbaum's electoral reform proposal (El Economista)

Electoral reform aims to cut the number of senators, cut parties' budgets, and have greater control over candidates (La Jornada)

Monreal recognizes regime lacks the votes to pass the electoral reform (Político MX)

This is what is included in Sheinbaum's electoral reform; aims to end nepotism and reelection (Milenio)

Sheinbaum's paradox; powerful but weak with its allies [opinion column] (El País)

Sheinbaum confirms Salinas Pliego has paid MXN 11.2bn in taxes (Proceso)

Security cabinet holds meeting with FIFA to coordinate operatives in the soccer World Cup (Milenio)

Activities start in the Gulf of Mexico's Trión oil field (Expansión)

• Decline is disappointing but doesn't nearly offset January y/y improvement

Domestic auto sales fell by 0.3% y/y in February, per data published on Wednesday by the stats office INEGI. The contraction diverges from the strong momentum of the two previous months. Indeed, while the contraction is disappointing, it doesn't nearly offset the strong performance posted in January, with an accumulated increase of 4.3% y/y in Jan-Feb.

Data Download

Overall, domestic auto sales began the year with a bang; however, this print suggests part of the January improvement was a fluke. Future prints will tell if domestic sales are performing positively in early 2026 overall, considering mixed Jan-Feb prints raise uncertainty about the pace to come in the coming months, even as private demand fundamentals remain robust.

• Next MPC meeting: March 26
• Current policy rate: 7.00%
• EmergingMarketWatch forecast: 25bps cut

We believe the CB's quarterly report presentation confirmed the CB is ready to cut its Monetary Policy Rate (MPR) by 25bps in late March. The Monetary Policy Council (MPC) doubled down on a dovish discourse at the presentation, in our view, with Governor Victoria Rodríguez minimizing lingering inflationary pressures and the bulk of the board claiming there have been no 2nd-order effects from the tax hike approved in late 2025 and enforced in January. This assessment is crucial, in our view, considering the board showed in its latest minute that it was willing to resume its easing cycle once it could be confident no second-order effects were materializing.

Data Download

We note previous consensus polls showed the market anticipated the next MPR cut would come until May. However, the latest CB poll shows 55% of the polled experts anticipate monetary easing in Q1, showing a narrow majority is now expecting monetary easing this month. While this percentage shows a divided projection, we believe the chances of March easing are very high, given the dovish tone shown in the latest minute and quarterly report presentation. Indeed, we'll be very surprised if the CB holds its policy rate at 7.00% in March, barring an unexpected shock from geopolitical conflicts or other external factors.

We add a recent interview by Deputy Governor Galia Borja as evidence that there is a wide consensus for further monetary easing. Indeed, given the position shown by Borja, we expect the March cut will come from a 4-1 vote, with only Deputy Governor Jonathan Heath voting to hold the MPR at 7.00%.

Moving forward, we'll expect a new pause after the March cut. However, it might be very brief again, with a new rate cut coming up in June. The timing of such a cut is unclear, in our view, considering the CB has not given clarity on this front.

Furthermore, we believe the terminal rate is something the board should begin to openly discuss in coming months. We note the market has constantly anticipated the terminal rate at 6.50%. However, we insist this disregards the surprisingly dovish position of the bulk of the MPC. We will not be surprised if the CB moves to ease further in H2, even if this brings the policy rate into expansive territory.

We note CPI inflation slowed to 3.92% y/y in February H1, up by 0.26pps so far in the year, on the back of fruit and vegetables' prices. This acceleration was, to a point, expected, considering the own CB has recognized inflationary pressures early in the year from the government's tax hike on sugary drinks and tobacco. Indeed, the food, beverages and tobacco component, which is likely to show much of the anticipated pressure, accelerated to 6.28% y/y in Feb H1, up by 0.95pps so far in 2026.

The stats office INEGI will publish its February CPI inflation print on Monday.

Overall, we expect the CB will cut its policy rate by 25bps in March, despite lingering inflationary pressure. We now expect a new rate cut in late Q2, although it could be delayed to Q3 depending on inflationary pressures. We insist there is no reason to be confident 2026 easing will not exceed 50bps, given the dovish position of the bulk of the board; we believe this will become clearer in the coming months, as we expect the CB to begin to address the terminal rate.

• Egypt plans to accelerate its divestment program, targets USD 6bn proceeds this year

Egypt's sovereign fund has invited investment banks and specialised financial institutions to submit technical and financial bids to manage the sale of a stake of up to 20% in Misr Life Insurance, the investment ministry said. The selected investment bank will be responsible for leading and marketing the offering, managing the book-building process, and coordinating with local and international investors to achieve the best value for the transaction. Interested investment banks must submit an introductory profile and their track record by March 8, 2026, for an initial internal review.

Misr Life Insurance, which holds around 22% share of the life insurance market in Egypt, was approved for a temporary listing on the local stock exchange earlier this week. In fact, according to unnamed sources, Egypt plans to list some 20 companies on the EGX this year ahead of offering them in IPOs. The sources said Egypt aims to raise USD 6bn this year in proceeds from its divestment program, which has stalled since 2024.

Egypt advocates dialogue on Iran (Ahram)

President El-Sisi reviews Egypt gas supply plans amid escalating regional tensions (Ahram)

US Embassy in Cairo: Our overall assessment of security situation in Egypt has not changed (Egypt Today)

Sovereign Fund of Egypt invites proposals for IPO of Misr Life Insurance Stake (Egypt Today)

Planning Minister discusses expanded food security cooperation with IFAD (Daily News Egypt)

Industry Minister reviews USD 480mn expansion plans with Elaraby Group in New Quesna (Daily News Egypt)

Egypt to add 2,500MW of renewable energy capacity to national grid (Daily News Egypt)

Egypt's sovereign fund seeks investment banks to manage 20% Misr Life Insurance stake sale (Daily News Egypt)

Egyptian government to announce new minimum wage by end-March (Zawya)

EBRD backs aluminium manufacturing in Egypt via USD 16mn loan to Alumil Misr (Zawya)

Strait of Hormuz closure poses no threat to Egypt's energy supplies: Badawi (Zawya)

• Next MPC meeting: April 2, 2026, but there is chance for unscheduled meeting before that
• Current policy rate: 19.5%
• EmergingMarketWatch forecast: 19.5% - 20.5%

As expected, the war in Iran has triggered capital outflows from Egypt and the pound weakened to USD/EGP 50.0 for the first time since the 12-day war in June 2025. Although the current conflict is more severe and has spilled over the region, Egypt's external position is comparatively stronger now, and the depreciation of the pound underlines CBE's commitment to a flexible FX rate. Foreign investors sold a total of USD 1.1bn worth of T-bills/bonds and equity through the local bourse during March 2-3, and the daily turnover at the interbank FX market also jumped to around USD 700mn, and the FX market appears liquid enough to accommodate a smooth and orderly exit.

Overall, we think that Egypt has the resources and the tools to absorb a short-term shock, and this is not the first time CBE is confronted with capital outflows triggered by major external shock. In fact, this is the third such shock in less than a year, and CBE's track record has been robust. Should the conflict persist or intensify, further depreciation of the pound appears inevitable. We expect the MPC to step in with a rate hike of at least 100bps, making the key question how much additional FX weakness the committee is willing to tolerate before acting. At this stage, we think that a USD/EGP level in the 52-53 range could trigger such intervention.

Data Download

Further, a prolonged war will be a major drag on the economy and will surely force the MPC to reverse the monetary easing cycle. Egypt's foreign reserves have been boosted by tourism and portfolio inflows (both vulnerable to the war in Iran), while Suez Canal revenues have just showed signs of recovery before the war dealt a serious blow to maritime activity in the region. The spike in oil and gas prices is another issue for Egypt, which has become heavily reliant on expensive LNG imports to meet its energy needs, opening a large deficit in the oil merchandise trade balance.

• Police inspector-general launched committee to develop legal and operational framework
• Committee has 4 weeks to submit recommendations on recruitment, funding, accountability, oversight
• Centralized policing faces criticism for slow responses to local security challenges

The push for state police in Nigeria is advancing after the new inspector-general of police Tunji Disu inaugurated a high-level committee on Wednesday (Mar 4) to develop a legal and operational framework for its implementation. Disu was sworn into his role on the same day, succeeding Kayode Egbetokun. Disu described decentralized policing as a permanent reform and said it would bring law enforcement closer to local communities and improve response to security challenges. The committee is to be chaired by academic Olu Ogunsakin, who is the director-general of the National Institute of Police Studies. Ogunsakin's committee is tasked with studying domestic and international policing models, addressing risks of abuse, and proposing structures for recruitment, training, funding, accountability and oversight. The committee has four weeks to submit its report.

Nigeria currently operates a centralized policing system, where the Nigeria Police Force is under the control of the federal government. Commissioners of police report to the inspector-general of police, not to state governors. Over the years, this centralized structure has drawn criticism for being slow to respond to localized security challenges which include insurgency in the Northeast and banditry in the Northwest. The push for state police gained renewed momentum under president Bola Tinubu's administration. In late Feb, Tinubu called on the senate and house of representatives to begin the process of amending the 1999 Constitution so that state governments can legally operate their own police forces.

• Security forces were deployed around buildings, diplomatic zones, major roads
• Lockdown targets planned protests by groups such as Islamic Movement in Nigeria
• US embassy in Abuja cancelled all visa appointments for March 4

According to reports, Nigerian security forces imposed a heavy lockdown this week across several areas of Abuja amid the escalating war between the United States, Israel and Iran, now in its fifth day. Armed personnel were deployed around government buildings, diplomatic zones, major roads and transit points to prevent potential unrest or spillover from the Middle East conflict. The measures included roadblocks and checkpoints. This is particularly meant to stop planned protests by groups like the Islamic Movement in Nigeria (Shiites) in response to the US-Israeli strikes on Iran, which had already sparked demonstrations in states such as Niger, Kaduna and Sokoto.

The US embassy in Abuja cancelled all visa appointments scheduled for Mar 4. The embassy said the decision was taken out of an abundance of caution due to the rapidly evolving crisis, though emergency consular services would continue to be available. The embassy also issued a security alert warning American citizens of the high risk of protests and demonstrations in the Federal Capital Territory. It advised US nationals to stay indoors and remain vigilant. Operations at the US consulate in Lagos remained unaffected.

• CBN increased gold holding with locally sourced LBMA-standard gold
• Gold was purchased in naira, preserving foreign currency reserves
• Governor highlighted gold's role as hedge against market volatility and geopolitical risks

The CBN has raised its gold holdings to approximately USD 3.5bn (around NGN 4.8tn) by adding domestically sourced gold refined to London Bullion Market Association (LBMA) Good Delivery standards. This is according to a statement by the bank on Wednesday (Mar 4). Previously in 2024, the CBN reported its gold reserves at NGN 2.77tn, up from NGN 1.28tn in 2023. CBN governor Olayemi Cardoso explained that purchasing gold in naira at prices linked to LBMA benchmarks strengthens reserves without using foreign currency, which supports broader macroeconomic stability and reserve diversification. Cardoso said this reflects global trends in central bank reserve management where gold is increasingly used as a hedge against inflation, market volatility and geopolitical risks.

The governor noted that the programme also supports domestic mining development and provides a platform for stakeholders to explore opportunities across the gold value chain. The programme works with local miners following OECD and World Gold Council responsible sourcing guidelines. Following the CBN's statement, industry leaders praised the programme's compliance with international standards. Representatives from the World Gold Council, the Africa Finance Corporation and Kian Smith Gold Company commended the programme for its model of responsible sourcing and investment facilitation.

Alleged terrorism: AGF takes over Malami, son's trial (Punch)

State police: IG sets up panel to propose framework (Punch)

Five-year port drug seizures hit N3tn - Report (Punch)

Power firms install 677,942 meters in one year (Punch)

NIPCO to deploy 20 new CNG stations nationwide (Punch)

Security Forces Lock Down Abuja Amid Escalating US-Israel, Iran War (ThisDay)

TCN: Over $1.3bn Transmission Projects Funded By Multilateral Agencies Ongoing Nationwide (ThisDay)

CBN Boosts Foreign Reserves with Indigenous Gold as Holdings Hit $3.5bn (ThisDay)

CBN withdraws N13.41 trillion from financial system in January 2026 - FMDA (Nairametrics)

Taiwo Oyedele says 12 states have adopted tax harmonisation framework (Nairametrics)

Dangote's PMS price hike will affect economy - PETROAN (Nairametrics)

• System will integrate multiple trade-related agencies into single online portal
• First phase will include online import permits and risk management system
• Authorities said platform will reduce delays and improve trade competitiveness

Nigeria will launch its National Single Window (NSW) platform on Mar 27, aimed at simplifying import and export procedures across the country. Speaking at a stakeholders' meeting at the presidential villa on Wednesday (Mar 4), chief of staff Femi Gbajabiamila said the initiative, first introduced nearly two years ago by president Bola Tinubu, forms part of a wider fiscal reform agenda to strengthen Nigeria's global competitiveness. The government established a committee for the project in Apr 2024 and directed that the digital trade platform be fully operational by Q1 2026. During the stakeholders' meeting on Wednesday, government officials expressed support for the project. Finance minister Wale Edun described the platform as a growth-enabling reform while CBN governor Olayemi Cardoso highlighted the need to close Nigeria's trade facilitation gap.

The system will integrate multiple trade-related agencies into a single digital portal, allowing importers and exporters to process documentation and clear goods more efficiently while reducing port delays and bureaucratic bottlenecks. NSW coordinator Tola Fakolade indicated that the first phase will allow online processing of import permits, electronic submission of cargo manifests and the introduction of a centralized risk management system. Pilot testing will be conducted before the platform goes live later this month.

• External demand was strong from Canada, Germany, Singapore
• Operating costs seen rising during the month, concomitant rise reported in charge inflation
• Composite index rises to 58.9

The services sector continued to expand at a strong pace in February, with activity levels broadly stable even as the growth in new business softened slightly. The HSBC India Services PMI Business Activity Index stood at 58.1 during the month, only marginally below January's 58.5, signalling sustained and robust expansion across the sector as the financial year approaches its close.

Data Download

The growth in activity was driven by a combination of steady demand, operational efficiencies and an increase in technology-related projects. Firms reported that stronger sales pipelines and improved workflow management helped maintain output momentum during the month. New business continued to rise, although the rate of increase slowed to its weakest level in just over a year. Some companies attributed the moderation to heightened competition, even as marketing initiatives and stronger customer enquiries helped sustain overall demand conditions.

Among the major segments, the finance and insurance sector remained the strongest performer, recording the fastest growth in both output and new orders. Real estate and business services also reported solid expansion, indicating that the services sector's growth remained broad-based. External demand showed particular strength. Services firms reported a noticeable rise in international sales, with export orders increasing at the fastest pace since last August. Businesses cited improved demand from markets such as Canada, Germany, mainland China, Singapore, the UAE, the UK and the US as key drivers of this expansion.

At the same time, companies faced a sharper rise in operating costs. Input expenses recorded their fastest increase in around two-and-a-half years, driven largely by higher food prices, including cooking oil, eggs, meat and vegetables, as well as increased spending on energy, labour and other commodities. In response to rising costs, many service providers raised the prices they charge customers, with output price inflation reaching its highest level in six months. Businesses indicated that part of the increase in expenses had been passed on to clients.

Despite these cost pressures, business sentiment strengthened considerably. Confidence among service providers rose to its highest level in a year, with firms expecting stronger demand and improved activity over the next 12 months. Plans to expand market presence and strengthen marketing efforts also supported the upbeat outlook. Overall, the February data suggest that India's services sector remains a key engine of economic growth. While competition and rising costs present challenges, steady demand, stronger export activity and improving business confidence point to continued resilience in the months ahead, in our view.

The HSBC India Composite PMI Output Index increased to 58.9 in February from 58.4 in January, signalling another period of robust expansion in overall business activity. The improvement was largely driven by the manufacturing sector, which recorded faster growth in both production and sales during the month. In contrast, activity within the services sector remained strong but grew at a slightly slower pace compared with January, leading to a modest divergence between the two sectors.

India moves to shield economy as Iran tensions expose oil, currency risks (Business Standard)

February PMI services comes in at 58.1; new order growth at 13-month low (Business Standard)

India dismisses claim that US is using its ports for strikes on Iran as 'fake and false' (Economic Times)

Sensex climbs over 500 pts, Nifty above 24,650 (Economic Times)

Middle East conflict poses near-term challenges to Indian economy: RBI MPC member (Economic Times)

"Concern For India As Well": Sri Lankan MP To NDTV After US Sinks Iranian Ship (www.ndtv.com)

India at UN calls for joint action against ISIS, Al Qaeda, cites Pahalgam attack (CNBC TV18)

Centre okays Rs 84,000-cr in boost to post-harvest assets (Financial Express)

India Taps Startups For 'Bodyguard Satellites' Amid Space Security Threats (www.ndtv.com)

EmergingMarketWatch coverage of India will be limited on 04 Mar 2026 due to a public holiday.

Indonesia Estimates Hundreds of Its Migrant Workers Are in Iran (Tempo)

Governments Ramp Up Evacuation Flights for Nationals Stranded in Middle East (Tempo)

Indonesia Negotiates to Release Two Pertamina Tankers in Strait of Hormuz (Tempo)

PDI-P steps up criticism of Prabowo's silence on US-Israel war against Iran (The Jakarta Post)

Indonesia renews mediator offer in Iran war (The Jakarta Post)

Indonesia to boost oil storage amid Middle East conflict (Antara News)

Sugiono, Saudi FM discuss Middle East de-escalation (Antara News)

China Lowers 2026 Growth Target to 4.5-5% (Koran Jakarta)

• Growing policy uncertainty, deteriorating fiscal outlook weigh on rating outlook
• BI expected to cut key rate by 50bps cumulatively to 4.25% by end-2026
• We expect S&P to cut Indonesia's outlook as well, following Moody's and Fitch's cuts

Fitch Ratings cut the outlook on Indonesia's BBB sovereign rating to negative from stable, according to an official press release. The move mirrors an earlier rating action by Moody's. The outlook revision reflects the growing policy uncertainty and centralisation of policymaking, which could weaken the medium-term growth outlook and weigh on investor confidence.

Essentially, in our view, the move also reflects the impact of MSCI's warning it could downgrade Indonesia to frontier market status due to concerns over price manipulation on the stock market. In addition, the appointment of President Prabowo Subianto's nephew, Thomas Djiwandono, on the central bank's governing board further eroded investor confidence.

On the fiscal front, Fitch expects the fiscal deficit to overshoot the government's 2.7% of GDP target in 2026, rising up to 2.9% of GDP, but still below the 3% legal threshold. This reflects Fitch's projection for revenues to fall short of target, while spending will likely gain pace on the back of social expenditures, including the free meal programme.

On the monetary policy front, Fitch expects Bank Indonesia to cut the key rate twice by 50bps cumulative this year, bringing it down to 4.25%. However, Fitch expressed concerns about the BI's inflation targeting mandate as the central bank is more and more involved with supporting GDP growth and maintaining the rupiah's stability.

Overall, the outlook revision was largely expected after Moody's took the lead in February. We expect S&P to follow shortly as well. On the other hand, we think the monetary policy outlook is quite uncertain, especially after the US-Iran war, as growth-supporting measures have to be balanced against increased pressure on the rupiah, which may force the central bank to remain on hold for longer than it envisioned.

• Prabowo instructed energy ministry to construct more storage facilities

Indonesia has fuel reserves to cover 20-21 days of national consumption, Energy Minister Bahlil Lahadalia said. The reserves' size is due to the capacity of the current fuel storage facilities, Bahlil added. So far, there is no issue with fuel prices and fuel subsidies in Indonesia, but the energy minister expects prices to go up if the US-Iran war persists.

In a related move, President Prabowo Subianto instructed the energy minister to begin construction of more fuel storage facilities, so that the capacity can be raised to three months of national consumption. However, this is a medium-to-long-term solution, as more oil storage facilities are unlikely to be constructed over the next few months.

We remind that Indonesia regulates fuel prices for both subsidised and non-subsidised fuels. Fuel consumption is largely tilted towards non-subsidised fuel, with about 70% of total fuel consumption.

Iran FM says US will 'bitterly regret' sinking warship in int'l waters; some flights depart from regional airports (Dawn)

Trump administration keeps 'boots on ground' option open as Iran conflict intensifies (Dawn)

US-India naval ties in focus amid Iran conflict (Dawn)

KSE-100 rebounds past 157,800 in steady early trading (Dawn)

Oil leaps 3pc on supply concerns as Iran conflict widens (Dawn)

Pakistan treads cautious path on Gulf conflict (Express Tribune)

SBP bought $24b to build reserves (Express Tribune)

Pakistan confident of weathering Middle East storm (Express Tribune)

Pakistan to get Saudi oil thru Red Sea port (Business Recorder)

• Saudi Arabia to ship oil to Pakistan through the Port of Yanbu
• Capacity constraints could limit shipments from Yanbu

The government requested an alternative oil supply route from Saudi Arabia due to Iran's closure of the Strait of Hormuz, Petroleum Minister Ali Pervaiz Malik said. He met with Saudi ambassador Nawaf bin Said al-Malki, who assured him that Pakistan's request would be met.

Instead of the Strait of Hormuz, Saudi Arabia will reportedly use the Yanbu port on the Red Sea to ship oil to Pakistan. As a result, shipping will certainly take more time and resources. Moreover, it is not clear if Pakistan will be able to maintain the level of oil imports from Saudi Arabia.

The Port of Yanbu can allegedly ship up to 3mn bpd, with the Aramco pipeline supplying it able to transport 5mn bpd. However, the loading capacity constraints have limited oil exports to 2mn bpd maximum during peak times in 2020.

• Reading is in line with analyst forecasts
• Core inflation accelerates to 2.9% y/y
• BSP is monitoring closely recent developments in the Middle East

CPI inflation accelerated to 2.4% y/y in February from 2.0% y/y in January, the statistics office reported on Thursday. The inflation target range is 2.0-4.0%. The latest reading is a 13-month high. It is also in line with the forecast in a Reuters poll, the estimate in a Bloomberg poll, as well as the median estimate of a BusinessWorld poll. The CPI rose by 2.2% y/y in Jan-Feb. Annual core inflation was 2.9% in February, speeding up from 2.8% in January. The seasonally adjusted CPI rose by 0.4% m/m in February, after edging up 0.1% m/m in January.

Data Download

The largest contribution to the acceleration of the headline index came from higher y/y price growth in the group food and non-alcoholic beverages, where prices rose by 1.8% y/y in February, after climbing 1.1% y/y in January. Price growth also accelerated in seven more commodity groups. On the other hand, annual growth decelerated in information and communication. In addition, the y/y decline in transport prices widened in February. Annual price growth was unchanged in three commodity groups.

Food prices rose by 1.6% y/y in February, accelerating from 0.7% y/y in January. The main contribution came from rice prices, whose y/y decline narrowed to 3.4% from 8.5%. Rice prices rose by 3.9% m/m in February. Furthermore, positive y/y price growth sped up for six other food items.

The top three contributions to the y/y CPI growth in February came from housing, water, electricity, gas and other fuels (0.7pps); food and non-alcoholic beverages (0.7pps); and restaurants and accommodation services (0.4pps).

The CPI inflation in February is within BSP's month-ahead forecast range of 2.3-3.1% y/y. In February, the BSP cut the policy interest rate by 25bps to 4.25%. The next monetary policy meeting is scheduled for Apr 23.

The central bank is monitoring closely the recent developments in the Middle East for their potential impact on near-term inflation and economic activity, the BSP said in a statement quoted by Bloomberg. The central bank will ensure that policy settings continue to be in line with its objective of price stability, consistent with sustainable growth and employment.

Philippine inflation hits 13-month high of 2.4% in February (INQUIRER)

Frontloaded issuance pushes PHL debt to P18.13 trillion (BusinessWorld)

UBS sees Philippine growth at low end of 5%-6% goal this year (BusinessWorld)

Seven-day term deposits fetch lower average rate (BusinessWorld)

Gov't moves to shield OFW money (BusinessWorld)

Biz execs bullish on PH econ recovery due to hike in infra spending (Philippine News Agency)

Poll: 72% of Pinoys expect to work past retirement (The Philippine Star)

299 Filipinos repatriated from Middle East amid tensions (Philstar)

PNP tightens security on US, Israel, Iran embassies (Philippine News Agency)

'Impeach raps vs Sara sufficient in substance' (Philstar)

PH to remain 'food secure' amid Mideast tension - DA (Philippine News Agency)

Philippines apprehends Filipino nationals suspected of spying for China (BusinessWorld)

• Decision supported by 54 votes; there was one vote against; and no abstentions
• VP Duterte given 10 days to respond to impeachment complaints
• If referred to Senate, impeachment case may fall short of securing support of 2/3 of all senators

The House Committee on Justice decided that the two remaining impeachment complaints against Vice President Sara Duterte are sufficient in substance, the PNA reported. The decision was supported by 54 votes; there was one vote against; and no abstentions.

There are several allegations against Vice President Duterte, such as betrayal of public trust, misuse of confidential funds and threats to have President Ferdinand Marcos Jr., his wife and the then-House speaker assassinated. Last year, she faced the same accusations, but the impeachment case was blocked by the Supreme Court, which cited a violation of the constitutional requirement that no impeachment proceedings be initiated "against the same official more than once within a period of one year." Vice President Duterte denied any wrongdoing.

Meanwhile, the House justice panel ordered Duterte to respond to the impeachment complaints within 10 calendar days. The committee's chair explained that finding the impeachment complaint sufficient in substance is not equivalent to declaring Vice President Duterte guilty of impeachable offences. The justice committee's decision is not a verdict for or against her, House Senior Deputy Speaker Ferdinand Hernandez said. Instead, it is a decision that the constitutional process should proceed.

The complaints need the approval of one-third of all members of the House to be referred to the Senate. The Senate has the sole power to try and decide all impeachment cases. In our view, there is a distinct possibility that Vice President Duterte will not be impeached because a conviction must be supported by two-thirds of all 24 senators.

• Net core inflation goes up to 3.6% y/y in January
• Core inflation exceeds total inflation, indicating ongoing stable domestic inflationary pressures, in our view

Core CPI slightly increased at 3.1% y/y in Jan 2026, the Bank of Albania (BoA) reported. Net core inflation increased to 3.6% y/y. We note that net core inflation excludes processed food subgroups (including bread and cereals) from inflation. Core inflation primarily excludes volatile products, such as food and energy, aiming to filter out short-term price fluctuations. We think that core inflation stickiness and persistent level above headline inflation indicates ongoing stable domestic inflationary pressures.

Data Download

We recall that in its latest monetary policy meeting, the BoA noted that inflation averaged 2.2% y/y during Oct-Nov 2025, a slight decrease attributed primarily to reduced food inflation. The rapid rise in rental prices slowed, and the negative impact of oil inflation diminished. Domestic inflationary pressures are consistent with price stability goals, while external pressures have eased due to declining commodity prices and a modest appreciation of the Lek, BoA governor noted. Domestic and core inflation remained stable, averaging 3.1-3.5%, with imported inflation in negative territory. In addition, BoA noted that it expected inflation to return to target by Q2 2026. The escalating conflict in the Middle East poses a distinct cost-push risk to Albania's inflation trajectory, potentially complicating the BoA's goal to reach its 3.0% target by Q2 2026, in our opinion. Given Albania's status as a net importer of fuel and various commodities, local analysts suggest that a sustained rise in global oil prices and disrupted supply chains could lead to a second wave of imported inflation. This geopolitical volatility is expected to exert upward pressure on transport and production costs, which may offset the disinflationary benefits of a stronger Lek and stable domestic monetary policy, potentially keeping core inflation levels elevated throughout H1.

• Opposition leader suggests PM seeks to protect himself from corruption investigations
• He calls for protests against government's direction, citing threats to national interests and Kosovo

Sali Berisha, head of the Democratic Party (DP), criticized PM Edi Rama for allegedly shifting Albania's long-term diplomatic focus away from EU integration. During a recent parliamentary group session, Berisha argued that a joint article authored by Rama and Serbian President Aleksandar Vučić signals a departure from the pro-EU strategic path the country has maintained since the early 1990s. Berisha suggested that the PM's regional diplomatic efforts are a strategic move to secure international backing and deflect from domestic legal challenges involving government officials. He expressed particular concern regarding the partnership with Serbia, asserting that such cooperation negatively impacts national interests and undermines Kosovo's regional standing.

The opposition leader reaffirmed that Albania's priority must remain full EU membership achieved through strict adherence to the rule of law and democratic standards. He once again rejected regional initiatives like the Open Balkan project, describing them as distractions from the goal of joining the European community.

To protest these policy shifts, Berisha has called for a public demonstration on Mar 12. He framed the current political situation as a pivotal moment for the country, urging citizens to voice their opposition to the government's recent actions and to advocate for the preservation of Albania's European aspirations.

• Budget deficit represents 1.8% of projected GDP for 2025
• Total revenues rise by 6.2% y/y in Jan-Dec 2025
• Expenditures up by 10.0% y/y to ALL 801.7bn

The general government budget posted a deficit of ALL 47.1bn in Jan-Dec 2025, up by 157.3% y/y, the finance ministry reported. We recall that the finance ministry's initial projections anticipated the budget to remain in surplus until October, then spending was expected to increase significantly in November and December. However, the budget remained in surplus until Nov and ran a deficit in Dec 2025. The surplus in Jan-Dec represented 1.8% of the estimated annual GDP.

Data Download

Budget revenues continued to grow in Jan-Dec, totalling ALL 754.6bn, representing a 6.2% increase y/y. Revenues from taxes and customs for Jan-Dec amounted to ALL 496.2bn, increasing by 8.6% y/y. Tax revenues collected by the customs administration, which include VAT on imports, excise duties, customs duties, and mineral royalties, reached ALL 239.7bn during the same period, reflecting a 4.4% increase y/y, with 98.2% of the customs revenue plan met for 2025. VAT on imports generated ALL 158.7bn, up by 2.8% y/y, while excise duties totalled ALL 68.6bn, a y/y increase of 9.7%. Revenues from mineral royalties in exports amounted to ALL 1.9bn, achieving 93.2% of the planned target, and customs duties reached ALL 9.5bn, a rise of 5.7% y/y. Tax revenues from the tax administration, which include net VAT, profit tax, personal income tax, and national taxes, totalled ALL 256.5bn, up by 12.8% y/y. Net VAT revenues were ALL 68.5bn, reflecting a 14.9% increase, while profit tax revenues were ALL 58.5bn, up by 2.7%. Personal income tax revenues reached ALL 82.5bn, a significant increase of 24.7% y/y. National taxes amounted to ALL 46.9bn, an increase of 5.1%. Revenues from special funds, which include social and health insurance contributions, reached ALL 178.2bn, up by 10.7% y/y, achieving 100.8% of the planned target for the period.

General public expenditures for 2025 amounted to approximately ALL 801.7bn with a realisation of 97.2% of the plan for the period and rising by 10.0% y/y. Current expenditure in Jan-Dec 2025 rose by 7.8% y/y to ALL 653.5bn. Capital expenditure resulted in about ALL 131.6bn while compared to the same period of a year earlier, this item resulted 7.6% higher.

We note that the y/y increase in revenues was ALL 44.3bn, the smallest annual rise recorded in the decade, compared with increases of ALL 85.0bn in 2021 and ALL 70.6bn in 2023. Expenditure developments diverged from revenue trends. Expenditures fell from ALL 59.8bn in 2021 to ALL 23.7bn in 2023, then increased to ALL 73.1bn in 2025. Only 60.6% of this rise was financed by higher budget revenues, the remainder was financed by an increase in the budget deficit relative to 2024. The fiscal deficit widened to ALL 47.1bn in 2025, an increase of ALL 28.8bn from ALL 18.3bn in 2024, after having narrowed from ALL 110.6bn in 2020. The 2025 deficit remained below the level established in the most recent normative act (and the initial budget projection. Part of the 2025 deficit financed social security expenditures associated with the retirees' bonus for 2026. On a current‑expenditure basis, 2025 shows a surplus of ALL 101.1bn. This surplus enabled most investment expenditures to be financed from budget revenues, with a smaller share financed by borrowing. Expenditures from special funds increased to ALL 270.3bn in 2025, up from ALL 251.8bn in 2024. Although revenues were sufficient to cover the 2025 pension bonus, the 6.2% increase in budget revenues for 2025 appears insufficient to support the larger bonus increases proposed for 2027-2029 without additional revenue measures, expenditure adjustments, or alternative financing. The data indicates a need for policy measures that raise sustainable revenue levels and prioritize investment and long‑term fiscal sustainability to address the demands of an aging population, in our view.

• Fuel deliveries started last Dec

Azerbaijan is to dispatch nearly 2,000 tons of diesel fuel by rail to Armenia today.

In addition, two rail cars carrying 135 tons of fertilizer from Russia will also be delivered to Armenia.

Fuel exports from Azerbaijan to Armenia via Georgia began last December after the sides lifted the ban on the transit of cargo last year.

• Ameriabank is part of Georgian Lion Finance Group (LFG)

Ameriabank as part of Lion Finance Group (LFG), has been included in the FTSE 100 index of one of the world's leading stock exchanges, the London Stock Exchange. Thus, as a member of LFG, Ameriabank is the first Armenian institution to be included in the top 100 on the London Stock Exchange, owing to the size of the Group's market capitalization.

Having been listed on the London Stock Exchange since 2006, the Group's inclusion in the FTSE 100 index takes place within two years after Ameriabank joined LFG. This testifies to the strategic importance of Ameriabank's inclusion in the Group and to its significant contribution to the Group's overall development. Lion Finance Group will officially join the index on March 20, 2026, after the market closes, with the change taking effect on March 23, 2026.

Artak Hanesyan, Chief Executive Officer of Ameriabank, emphasized the importance of the event not only for the Bank and the Group, but also for the region and Armenia, saying that this is an important milestone and a strong signal in terms of international investor confidence.

• Fuel deliveries started last Dec

Azerbaijan is to dispatch nearly 2,000 tons of diesel fuel by rail to Armenia today.

In addition, two rail cars carrying 135 tons of fertilizer from Russia will also be delivered to Armenia.

Fuel exports from Azerbaijan to Armenia via Georgia began last December after the sides lifted the ban on the transit of cargo last year.

• Economy Minister says GDP growth does not correspond to country's potential
  

The current pace of economic growth does not correspond to Azerbaijan's potential, according to Economy Minister Mikayil Jabbarov. He made that statement said during his speech at the forum titled "A Look into the Future of the Tax System: A New Management Model and Data-Driven Decisions."

The minister said that the country's foreign exchange reserves, low level of public debt, and fiscal indicators demonstrate the strong economic and financial foundations of Azerbaijan. Nevertheless, the existing economic growth rates do not fully reflect the real potential of the national economy. Jabbarov noted that for this reason, the main goal of economic policy is to form new and more sustainable sources of economic growth. According to him, the adoption of knowledge and technologies, the wider application of artificial intelligence, and data-driven decision-making mechanisms will create new opportunities for the innovative development of the economy.

The minister added that within the framework of the "Azerbaijan 2030" development vision, a new package of measures covering 2027-2030 is being prepared, and the document has already undergone preliminary discussions at the Economic Council of the Republic of Azerbaijan. Jabbarov emphasized that the document envisages the formation of an export-oriented economy, expanded access to credit resources, and the application of innovative approaches in economic policy.

He also noted that expanding trade partnerships to enable non-oil and gas products to enter new markets and strengthen positions in existing markets is planned, as well as making more active use of the Alat Free Economic Zone and transport-logistics infrastructure opportunities. According to him, macroeconomic stability, protection of investors' rights, and a favorable business environment in Azerbaijan are turning the country into one of the region's reliable investment destinations. The minister added that amid the positive trends observed in the economy, there are also positive forecasts for the country's sovereign credit rating to increase and reach investment level.

Protest of workers at Nova Zeljezara Zenica cancelled (Dnevni Avaz)

BiH FinMin Amidzic: Ministry will provide funds for return of citizens from endangered areas of Middle East (Dnevni Avaz)

Distribution companies in Republika Srpska end last year in the red (Nezavisne Novine)

Who is sabotaging introduction of new electoral technologies? (Nezavisne Novine)

Number of migrant crossings in BiH has almost halved (Nezavisne Novine)

Who will give KM 300mn for RiTE Gacko and RiTE Ugljevik? (Nezavisne Novine)

RS PM Minic: New incentive for milk processing (Glas Srpske)

• Slowdown owes to food and transport prices
• Disinflationary effect of transport prices likely to be reversed with rising fuel prices amid Middle East conflict
• Utility prices also expected to push inflation upwards

CPI inflation decelerated to 3.6% y/y in January from 4.1% y/y the previous month, according to figures from BiH statistics office. In monthly terms, consumer prices rose by 0.9%, up from 0.1% m/m increase in December.

Data Download

The main downward pressure on the headline index came from food and transport prices. Food and non-alcoholic beverage prices rose by 4.6% y/y in January compared to a 5.3% y/y increase the month before. These prices have been acting disinflationary since August. Transport prices also acted in this direction as their fall deepened to 2.3% y/y from 0.2% y/y decline in December. Yet, the trend would likely be reversed as fuel prices started to rise amid the escalation of the Middle East conflict - the pro-inflationary impact from oil and natural gas prices will depend on the duration of the conflict, in our view. RS PM Savo Minic has already pledged that the government would respond appropriately if the Middle East conflict caused price increases, without elaborating. The FBiH authorities will likely react as well if a surge in prices is observed.

Utility prices also had a negative contribution, but this will likely change in view of the upcoming hike in electricity bills in the RS. Note that in December, the RS energy regulator RERS approved an increase of the distribution network fees for 2026-2028 that would result in a 10% hike in electricity bills for households and a 6% hike in bills for businesses from February. It did not review requests for an increase in electricity prices. Furthermore, electricity tariffs in Brcko District will go up by 6.8% y/y on average from Feb 1.

Health and clothing prices exerted a minor upward pressure on the headline index, whereas the other price categories had virtually no impact.

The central bank CBBH forecast that the headline inflation would decelerate to 2.8% in 2026, while the IMF sees it at 2.6% in 2026. However, they do not factor in the impact of the conflict.

• 600 employees could lose their jobs

Bankruptcy proceedings at Nova Ljubija iron ore mine, formerly ArcelorMittal Prijedor, are expected to be initiated within days, putting 600 jobs at risk, local Nezavisne Novine daily reported. A well informed source of the media said that the owner Gordan Pavlovic has informed workers that bankruptcy was unavoidable, citing daily financial losses. The workers are expected to remain employed only through the end of March.

In 2025, H&P, a member of the Pavgord group owned by Pavlovic, acquired ArcelorMittal's Prijedor iron ore mine and the Zenica steel plant, now called Nova Zeljezara Zenica. The steel plant is the only buyer of the Prijedor mine production. Note that upon the proposal of Nova Zeljezara Zenica, the trade ministry headed by Stasa Kosarac (SNSD) has proposed BiH to introduce 30% tariffs on steel imports. The foreign trade ministry argued that foreign producers have been exerting unfair pressure on the domestic market, flooding BiH with their products, leaving local manufacturers at a competitive disadvantage with significant unused production capacity. The proposal was not adopted by the Council of Ministers of BiH.

• At least two parties to be necessary to form majority government
• Radev attracts voters of socialist BSP, nationalist parties as well as previously inactive voters
• Previously leading parties of GERB and WCC-DB also lose support

The political project of ex-President Rumen Radev led convincingly with 32.6% of support in February, according to the latest Alpha Research poll. At least two parties would be necessary for a majority government, the pollster said. Radev has chosen the little coalition of Progressive Bulgaria to run in the snap parliamentary elections on Apr 19, which happened after the cutoff date of the poll, we note. Radev has been shown clearly in the lead in all polls since he announced his intention to run in the elections. One-third of Radev's voters were people who did not vote on the previous elections, according to the pollster. The rising support for Radev seemed also to come from voters shifting from nationalist Vuzrazhdane and the smaller populist parties of TISP, Sword and Greatness. Socialist BSP, which had nominated Radev for President, also likely lost voters to Radev, the poll suggested. All these parties, except Vuzrazhdane, found themselves below the 4% parliamentary threshold in the Alpha Research poll, while Vuzrazhdane lost 5.2pps of support since the previous poll in Dec 2025.

GERB, the previously senior ruling party, was second in the poll with 19.7% of support. It was followed by liberal WCC-DB with 12.6%. Both GERB and WCC-DB lost votes from the previous poll, probably as their fringe voters also migrated to Radev's electorate, in our view. WCC-DB might have been additionally hurt by a scandal with the mysterious and deeply controversial death of three mountain rangers, linked to the party by various channels, we think. The Turkish minority parties of MRF and ARF saw the least impact from Radev's entry on the political scene. MRF was the fourth most popular party with 9.6%, up by 0.2pps since Dec 2025. Its rival ARF, set up by MRF's original founder Ahmed Dogan, remained a marginal factor with just 1.6% of support.

Some 55.1% of the poll respondents said they will definitely vote on the elections, while 32.6% will not vote and 12.3% hesitated. Election activity seemed to cool compared to the end of last year, the pollster commented.

• Karaivanova to take over BNB's issue department

BNB governor Dimitar Radev nominated ex-deputy finance minister Karina Karaivanova for deputy governor of the BNB, local media reported. Karaivanova will replace Andrey Gyurov, who left the post to become interim PM after the government resignation late last year. Karaivanova has long experience in the finance ministry, including as deputy finance minister, and has also served as head of the financial supervision authority. She is currently Bulgaria's representative on the EBRD board of directors. She will take over the BNB's issue department if the parliament endorses her nomination by a simple majority of attending MPs.