• Measures to take effect as of Apr 8
• Profit margins will be capped at CZK 2.50/l for both diesel and petrol, which is their level at end-February
• Excise tax on diesel will fall by CZK 2.35/l to CZK 7.60/l, the minimum EU level
• PM Babis ruled out a VAT rate cut or a price cap
• Fiscal cost is projected at CZK 1bn per month
• We estimate the impact of these measures on year-on-year inflation at -0.07pps

The government will cap profit margins on sales of petrol and diesel, as well as lower excise tax on diesel, effective of next Wednesday (Apr 8), PM Andrej Babis said after an emergency cabinet meeting on Thursday (Apr 2). As a reminder, there will be a 4-day period of Easter holidays in the Czech Republic, between Apr 3 and Apr 6.

Profit margins will be set at CZK 2.50/l, which is approximately their level at the end of February. The margin level was agreed with the major fuel distributors in the country, whom Babis met on Wednesday (Apr 1). According to the finance ministry's monitoring, profit margins have narrowed since the war with Iran started, and their levels on Mar 15 were CZK 2.07/l for petrol, and CZK 0.84/l for diesel. The finance ministry has not published an update since then, but we reckon profit margins have likely remained lower than at the end of February. Still, this is some mitigation against future price growth, as according to the latest data from the statistical office, petrol prices reached CZK 41.38/l in the week of Mar 30-Apr 5, a 22.5% increase since the end of February. Meanwhile, diesel prices reached CZK 48.29/l, a 44.2% hike since end-February.

Excise tax on diesel will decrease by CZK 2.35/l, down to CZK 7.60/l. FinMin Alena Schillerova confirmed that the new excise tax is at the EU's minimum level, so the government cannot lower it further. The fiscal cost is estimated at CZK 1bn per month. Excise tax rates on petrol will remain unchanged, for now. Monitoring of retail fuel prices will continue daily, and the finance ministry will make sure that profit margins do not exceed the cap. In particular, the finance ministry will follow wholesale prices of the largest fuel distributors, as well as on the local commodity market. Thus, final retail prices should not exceed the average wholesale price plus CZK 2.50/l and then 21% VAT (applied after profit margin and excise tax are added).

Impact on inflation to be marginal, CNB to hike policy rate only if second-round effects from high fuel prices are observed

The excise tax cut will bring diesel prices down by 5.9% from their latest level of CZK 48.29/l, as of Mar 30, reaching CZK 45.45/l. We estimate that the impact on year-on-year inflation will be -0.07pps (diesel has a 1.24% weight in the CPI). The thing is, it is highly unlikely that wholesale diesel prices will remain unchanged, so we will likely see some more price growth in the coming weeks. The government has pledged to explore opportunities to deal with high fuel prices with neighbouring countries, as well as seek additional supplies through the TAL pipeline. However, we doubt that there is much the government can do, short of a price cap or further tax cuts. Importantly, PM Babis ruled out a VAT rate cut or a price cap, saying it did not make much sense in the current situation.

Thus, the measures will likely not have a major impact on inflation, even though it will decelerate price growth a bit. With that in mind, we expect that if fuel prices remain at their level from early April, the full impact on year-on-year inflation will be about +0.5pps during the month. Moreover, our assessment over a possible monetary policy response remains unchanged. The CNB board will only a consider a rate hike if there are visible second-round effects from high fuel prices. However, if the impact on core prices is marginal, interest rates will be likely left unchanged at the MPC meeting in May.

• Diesel prices led headline growth, rising by 3.1% w/w
• LPG prices saw their first sharp increase, up by 9.9% w/w
• While this doesn't impact the fuel market that much, it indicates where wholesale natural gas prices are headed
• Based on a 4-week moving average, fuel prices will add 0.33pps to year-on-year inflation; if they remain at early April levels, however, the impact could be +0.6pps
• CNB will be in a tight spot at the MPC meeting in May; we expect that core inflation will be the key factor for the next policy decision
• If core prices remain relatively stable and below 3%, then the CNB could keep interest rates unchanged a bit longer
• However, we see the odds of the CNB avoiding rate hikes in 2026 as increasingly low

Fuel prices rose by 2.2% w/w in the week between Mar 30 and Apr 8, according to EmergingMarketWatch calculations based on weekly data of the statistical office. Normally, we don't cover fuel prices on a weekly basis as changes are fairly small. Given the latest developments in the Middle East, however, we feel that providing a higher frequency of this series would be helpful. We will continue this until oil markets calm down, and monthly reports will keep on as usual.

Diesel prices led growth, as it has been the case throughout March, rising by 3.1% w/w. Meanwhile, petrol prices had a noticeable contribution as well, up by 1.3% w/w. More noticeably, however, LPG prices are now starting to reflect the squeeze in natural gas supplies, as they rose by as much a 9.9% w/w, their sharpest increase since the war with Iran started. While LPG prices have been growing at about 2-4% w/w so far, which is pretty robust, this is the first time we have seen a sharp hike. The impact of LPG fuels on the market is negligible, with a weight of 2.2%, but it is indicative of where wholesale natural gas prices are going. This also coincides with the recent spike in natural gas offer prices, a new publication from the energy regulator.

Using a 4-week moving average, the impact of fuel prices on year-on-year inflation will be +0.33pps. However, if fuel prices remain at their levels from the beginning of April throughout the entire month, then the impact on inflation could be as large as +0.6pps. Thus, fuel prices alone could push headline inflation to about 2.5% y/y as early as in April, not accounting for any second-round effects.

Furthermore, we also expect that food prices will start feeling pressure from higher fertilizer prices. Our research shows that Czech farmers import fertilizers primarily from other EU countries, like Slovakia, Poland, and Germany. Out of these, Poland and Germany now largely rely on supplies from Norway and LNG, where the United States could probably mitigate the impact of suspended Qatar LNG exports. We have seen reports that Polish farmers have decent fertilizer supplies, but the odds are only new production, at a higher price tag, will be exported. Thus, we expect that agricultural producer costs will inevitably rise in Q2, though at this point, we would argue the rate of increase is anyone's guess. In any case, food prices are likely to start adding pressure on headline inflation as well, and we could see inflation near, if not exceed 3% before the end of H1. Naturally, the situation is highly dynamic and developments in the Middle East could go either way. However, we should assume at least a one-off price shock for now.

Monetary policy impact

With that in mind, the CNB board will be likely in a difficult situation at the MPC meeting in May. We expect that core inflation will be instrumental. If second-round impacts start showing up in the April print, then the odds of a rate hike, likely at 25bps initially, will increase. On the other hand, if pressure comes primarily from volatile prices, but core inflation remains stable, then the CNB could keep interest rates stable once more. The ECB is also expected to deliver a rate hike in April, which will be of significance for the CNB, but not a determining factor. We don't expect the CNB to follow blindly the ECB's policy decisions, though rate levels in the euro area will matter for monetary policy considerations.

Given everything that has transpired, we see increasingly low odds that the CNB could avoid rate hikes this year. Price stability is its primary mandate, and after all the talk that the CNB should be proactive and make sure inflation remains stable in the long term, we don't see much room for being inactive. Again, core inflation will be the indicator to watch. If core prices remain relatively stable and below 3%, then the CNB could afford to extend its wait-and-still stance a bit longer. However, as soon as second-round effects on inflation start creeping in, we expect the CNB to act quickly. Inflation expectations will also be important, as households have become much more sensitive to some price changes, especially those of food prices. Thus, keeping inflation expectations in check will also be on the CNB board's mind at the MPC meeting in May.

Pricey fuels make interest in electric vehicles in the Czech Republic rise. Among firms and auto markets (Hospodarske Noviny)

Trump promises two to three weeks of hard strikes against Iran, goal is closer (Lidove Noviny)

Trump promises new hard strikes against Iran. Markets fall, oil gets pricier (E15)

Preventing the US from using its bases? Europe hasn't noticed its ally is at war (Mlada Fronta Dnes)

NATO without USA? Trump makes threats again (Pravo)

First Iran bill arrives. State to pay millions more on interest on new debt (E15)

First EU steps towards a revision of emission allowances (Hospodarske Noviny)

Will Pavel and Macinka get into a fight? It would be better than publicly arguing about reevaluating relations with Hungary (Lidove Noviny)

Expensive politicians. They are getting millions more on top of their wages (Pravo)

When an online shop is run by a seller in Asia (Mlada Fronta Dnes)

• Offer prices refer to the beginning of the month and include flat fees
• These are only indicative tariffs, which do not reflect actual contract price levels
• To simplify things, we will use the most popular contract times, with a 2-year fixed price rate
• Thus, energy offer prices rose by 11.9% m/m in April, while natural gas prices were higher by 25.8% m/m
• We estimate the potential impact on year-on-year inflation at +1.02pps, assuming stable prices from here on

Energy offer prices for households rose sharply in April, according to a new publication by the energy regulator (ERU). The publication does not show actual contract prices, only a summary of current offers by energy suppliers, including flat fees. The ERU emphasises that this is only an indicative series, primarily aiming to inform households of whether current offers deviate from what is normal for the market. Furthermore, the ERU notes that the numbers in this report are not legally binding to energy suppliers, so their offers can go outside it. This could sometimes happen if some offers are extended, as part of a promotional campaign, for example. Data refers to the beginning of the month, and will be hopefully updated regularly. Unfortunately, the series goes back only to November 2025, though it still reflects the elimination of the renewable energy surcharge at the beginning of 2026.

We haven't decided how to present that data yet, so treat the presentation format as preliminary. We are using the most popular D02d electricity tariff rate, which applies to the majority of households, and we will be focusing on households that use natural gas for heating & cooking, which is also a vast majority. The data show that energy suppliers are raising 1-year fixed rates the sharpest, by about 17-18%, with the increase easing to about 11.5-12.3% for 2-year fixed rates, and being the softest for 3-year fixed rates, at 7.1-8.4%. The most popular contracts are those with a 2-year fixed price clause, and they are the ones that the ERU chose as a default feature in its presentation.

As far as natural gas is concerned, offer prices for the most popular 2-year price rate have increased by 25-26%, given that LNG prices have increased quite sharply. There isn't a big difference in how 3-year price rates have developed, rising by 20-21%, while 3-year price rates are higher by as much as 34-36%, indicating that suppliers expect prices to be high in the immediate future. In all fairness, there isn't much difference in price changes when natural gas is used for single-family homes or for cooking only, so we can safely use the heating rates as the most popular ones (and the ERU also used them as the default option).

Based on these assumptions and clarification, we see average electricity offer price as rising by 11.9% m/m in April, while natural gas prices - by 25.8%. To note, electricity offer prices fell by 4.8% m/m in January, which is in line with the elimination of the renewable energy surcharge. We remind that these are final prices, i.e. they include the market component. The big unknown is when will these prices be applied exactly. Energy suppliers do not provide data on what part of their contracts expire and when. Normally, contracts are automatically extended at the same terms (also confirmed by the ERU in this report), except price, which is set at the current offer levels. Given that CPI calculation is based on actual consumption rather than on offer rates, these hikes do not immediately suggest a stronger inflation.

Full impact on year-on-year inflation could potentially reach +1pp

What we can do, however, is estimate the full impact of these price hikes, when they are eventually applied in full. We will be using year-to-date changes for the most popular contract times, i.e. a 2-year fixed price, a D02d tariff for electricity, and a cooking tariff for natural gas. As a result, electricity offer prices rose by 9.5% ytd as of April, while natural gas prices were higher by 33.2%. The CPI weight of electricity is 4.3034809%, while that of natural gas is 1.8462876%. Thus, the impact of these hikes on year-on-year inflation will be +0.41pps from electricity, and +0.61pps from natural gas, or a total of +1.02pps. Once again, we have no way to estimate when exactly this impact will be realised, only that it will be seen within the next 2 years. Still, this implies that headline inflation will near 3% in late 2026, assuming no change in energy prices.

As far as monetary policy is concerned, it will largely depend on the second-round effect from higher energy prices. If core inflation picks up again and exceeds 3%, then the odds are we will see at least some rate hikes. If energy prices do not rise much from what we are seeing now, we see a cumulative rate hike of 50bps. However, if the crisis gets bigger, then we could see more. As far as the government is concerned, we see some realisation that fiscal space is relatively limited, as long as avoiding an EDP is concerned. Thus, if this is the magnitude of energy price hikes, the government could let them be absorbed by households, possibly offering some additional energy subsidies to less affluent ones. This will be likely unpopular, but as long as energy price hikes remain contained, the government could decide that fiscal deterioration is the bigger evil.

• Performance is still heavily impacted by the provisional budget that was in place until Mar 20
• Revenues rose by 3.9% y/y, with gross EU flows higher by 23.1% y/y
• Windfall tax pushed down revenue growth, as without it, revenues would rise by 5.7% y/y
• Expenditure fell by 7.9% y/y, mostly due to a 30.9% y/y fall in current transfers
• Some of these are delayed payments, while others are subsidy cuts or expenses carried over to local governments
• We see spending rising sharply in April when all delayed payments will be made
• Our estimates show that accounting for delayed payments, the deficit would increase modesty in year-on-year terms

The state government budget reported a deficit of CZK 27.6bn (0.3% of GDP) in January-March, according to figures from the finance ministry. Performance was still impacted by the provisional budget in place throughout most of Q1, which limited monthly expenses to 1/12th of total expenditure in the previous calendar year. Even though President Petr Pavel signed the new 2026 budget bill into law on Mar 20, there wasn't enough time for all delayed spending, mostly public investment and transfers, to be realised by the end of the month. We expect that the impact from the provisional budget will fully disappear when the January-April print is published next month. Until then, the cumulative deficit remains lower by 3.3 times in year-on-year terms, mostly due to lower spending. Meanwhile, the deficit added up to CZK 10.7bn in March alone, down by 2.1 times in year-on-year terms.

Data Download

Revenues rose by 3.9% y/y in January-March, with tax proceeds being higher by 3.5% y/y. Social contributions were again the main growth driver, rising by 6.6% y/y. Among other taxes, corporate income tax saw a boost in revenue by 15.2% y/y, while VAT revenues were higher by 2.5% y/y, though collection improved noticeably in March, mostly due to higher fuel prices. The expiration of windfall tax had a downward impact on tax revenue, as 2025 was the last year when the tax was levied. Excluding windfall tax, tax revenues rose by 5.7% y/y, which is a much more typical growth rate. This will be one of the main factors limiting revenue growth in 2026, as windfall tax proceeds added up to CZK 38.4bn in 2025. Gross EU flows improved by 23.1% y/y, which is mostly due to delayed payments from the EU budget, originally scheduled for late 2025. Gross EU flows added up to CZK 8bn in March, which was much closer to normal monthly flows.

Expenditure fell by 7.9% y/y in Q1, mostly due to current transfers, which were lower by 30.9% y/y. The decline in current transfers was a combination of some payments being delayed to the provisional budget, and some payments delegated to local governments, like the salaries of non-teaching school staff. Furthermore, the new government has cut research subsidies for universities, which will further bring down education subsidies. We don't have a clear idea how many payments are still due, which is why the January-April print will be much more indicative of how spending has developed. We also expect capital transfers to rise faster than the 8.3% y/y increase seen in Q1, so spending growth will very likely accelerate in the next budget print. Otherwise, social expenses rose by 5.2% y/y and were the strongest growth driver. There was also a hefty increase in the contribution to the EU budget, mostly due to a stronger-than-expected economy performance in 2025. Personnel expenses rose by 7.4% y/y, and this is before the wage hike in the public sector, which takes effect in April, so we expect a boost in spending on that account as well.

Overall, budget performance is still heavily impacted by the provisional budget, so we expect a sharp increase in the deficit in April. Our rough estimate indicates that the deficit would end up slightly higher than a year ago, when it reached CZK 126.1bn. As a reminder, the new government is to implement most of its fiscal policy changes as of 2027, and the IMF estimates their fiscal cost at 1.1% of GDP, so we are yet to see a more noticeable fiscal expansion. This year's fiscal targets suggest a state government deficit of CZK 310bn (3.5% of GDP) and a general government deficit of CZK 197bn (2.2% of GDP).

• Information on reserves and supplies to be published regularly
• Government to have stronger hand in keeping price cap if it wins elections, Gulyas says

The government aimed to maintain the fuel price for as long as possible, PM Office head Gergely Gulyas said on the government's weekly press conference. The government has a commitment in this effect, he pointed out but abstained from a clear answer, in our opinion indicating that the price cap could be removed under certain circumstances. Information about fuel reserves and the supply situation will be published regularly, allowing visibility on the options to keep the fuel price cap, he said.

The government introduced the fuel price cap as of Mar 16 and did not specify an expiration deadline for the cap in its relevant regulation. The National Bank of Hungary (NBH) assumed in its latest Inflation Report that the fuel price cap will be removed in mid-May. The fuel price cap has been sustained so far by the decision to release the country's strategic reserves, which are sufficient for 45 days of consumption, we note. Beyond that, the government would have to either revise the cap up or abolish it altogether, we think. Keeping the cap in place by assuming the cost or by shifting into large market players like oil and gas group MOL are other options but considerably less likely or sustainable, in our view.

The EC has requested the government to immediately remove the fuel price cap, Gulyas disclosed. He rejected the call, adding that the government will have more options to support the price cap in case it wins the Apr 12 elections. We think he implied that the government expected to have stronger bargaining power with Ukraine to re-open the Druzhba oil pipeline, allowing unimpeded Russian oil imports, in case of an election win. A longer blockade of the Strait of Hormuz could mean not only higher energy prices but also energy supply shortages, Gulyas warned.

• Demand concentrated on ten-year bond
• Yields show mixed trends across maturities, curve inverts entirely after three-year mark

The State Debt Management Agency (AKK) sold HUF 115.0bn of three-, five- and ten-year government bonds on the latest primary auction, AKK data showed. The issued volume was more than double the original auction size with strong demand allowing the significant oversubscription. Total bids amounted to HUF 242.7bn, providing an exceptionally high bid-to-cover ratio of 4.9x against the initial offer. The coverage ratio over the actual issuance was in line with the AKK implicit target of 2x, we note. Demand, however, was concentrated mostly on the ten-year bond, possibly in relation to banks' efforts to win eligibility for the windfall bank tax relief. Average yields showed mixed developments across maturities with the three-year yield rising from the previous tender two weeks ago, while the five- and ten-year yields fell visibly. The curve thus inverted entirely after the three-year mark. Yields were also higher than the respective secondary market benchmark rates.

• Both Tisza, Fidesz achieve small m/m popularity gains, but Tisza continues to pull more voters
• Public perceptions about elections outcome turn in Tisza's favour for first time
• Our Homeland to be third party to win parliamentary mandates

The opposition Tisza has widened its lead over the ruling Fidesz by 1pp m/m to 9pps among decided voters certain to vote, according to a late March poll by the Publicus pollster. Tisza raised its popularity by 2pps m/m to 49% in this cohort, while Fidesz managed a smaller 1pp m/m increase to 40%. Publicus measured a 36% rating for Tisza among all voters compared to 30% for Fidesz and the gap between the two parties in this sample also widened slightly by 1pp m/m on he back of Tisza gains. We note that discrepancies between pollsters have seemed to magnify during the official election campaign. Publicus findings for example ran counter to other pollsters' findings that Fidesz started to trail further behind Tisza in March, we note. The general picture, however, remained almost unanimously in favour of a clear win of the Tisza list in the elections, in our view.

The steady inflow of poll results in favour of Tisza has managed to turn public perceptions about the outcome from the elections, the Publicus poll showed. Some 39% share of people believed that Tisza will win the elections, compared to 38% believing in a Fidesz win. This was the first time that voter expectations were not balanced in favour of a Fidesz win, the pollster pointed out. The higher share of people, 49% or almost half, preferred Fidesz to lose the elections, rising considerably by 14pps since Jan 2025, it added.

Nationalist Our Homeland would be the only other party to win MP seats on the elections, the poll showed. This finding has been shared by the majority of surveys, we note. Our Homeland had 6% among decided voters certain to vote, slightly above the parliamentary threshold of 5%. Liberal DK and the joke Two-Tailed Dog Party (MKKP) trailed with 3% each, in our opinion losing votes to Tisza as the most credible Fidesz challenger.

• Net forex issuance plan met at 66.0%
• Gross issuance amounts to HUF 5,174bn with favourable pro-rate execution in all three segments

Net issuance of government debt amounted to HUF 3,676bn in Q1, the State Debt Management Agency (AKK) announced. Net issuance of forint debt stood at HUF 1,584bn, while net issuance of forex debt had a higher contribution of HUF 1,677bn due to the frontloaded Eurobond issuance in January. The execution ratio of the net forex issuance to the total annual plan was 66.0% at the end of the quarter. The AKK also highlighted net retail security issuance of HUF 425bn in the period, which we note also exceeded the pro-rata execution ratio compared to the full-year plan of HUF 1,300bn.

Gross issuance reached HUF 5,174bn or 30.8% of the annual plan. The execution ratios were again tilted in favour of forex financing, which was met at 47% as of end-Q1, while the forint institutional financing plan was met at 25%. The targets were fulfilled above the respective pro-rata shares for the quarter in all three financing segments of forint institutional, forex financing and retail securities, the AKK underlined. Demand on the forint institutional market was in line with expectations, taking into account the geopolitical volatility, it said. The bid-to-cover ratio on the forint bond primary auctions was 2.16x in Q1, which favourable compared to the historical ratio of 2x and indicated healthy demand, it noted. Retail securities remained an important financing channel in the quarter and the AKK signalled that it intended to shift the structure of retail security issuance towards fixed-rate securities in the periods ahead.

The forex bond issuance in January was highly successful, the AKK said, as it drew strong interest and yields fell below expectations. The AKK acknowledged the market-reported USD 1.2bn tap issue of USD bonds in February, noting that it was on the back of a reverse inquiry by investors.

PM Viktor Orban: If we do not want Hungary to be robbed, we need national government! (Magyar Nemzet)

February cash rush brings hundreds of billions to retail bank accounts (Magyar Nemzet)

4iG subsidiary acquires majority stake in HeliControl Kft (Magyar Nemzet)

Authorities working to extend Home Start programme to people working abroad (Magyar Nemzet)

Gigantic logistics investment is under way at Hungarian-Austrian border: This will be new centre of West and East (Vilaggazdasag)

Paper producer Vajda-Papir makes historic announcement: It is pouring HUF 40bn into Hungary, acquiring Italian multinational's factory (Vilaggazdasag)

Vox Populi: "Something stinks" in Fidesz's campaign, according to recent surveys (Heti Vilaggazdasag)

Political analyst Gabor Torok: "Can the two pollsters producing the most accurate measurements be so wrong?" (Heti Vilaggazdasag)

Pro-government pollsters Nezopont shows exactly in which districts Fidesz expects to win (Heti Vilaggazdasag)

Question:

Regarding the HUF 450bn budget for law enforcement bonuses: was this amount fully exhausted by the January payments? Does the January budget balance data confirm that all that amount has been spent? Any spillover to hit the February wage data?

The question was asked in relation to the following story: Budget improves y/y to HUF 32.3bn surplus in January

Answer:

The finance ministry reported HUF 725.5bn of payroll expenses in January (HUF 395.4bn in Jan 2025) and HUF 1,410.9bn in Jan-Feb (HUF 821.2bn in Jan-Feb 2025). It has not commented specifically on the size of the bonus payment and its monthly distribution. What we can infer from the figures though is that part of the payment likely fell in February as well, since the February figure is quite comparable to the January expenditure. The total y/y increase in the payroll expenses was HUF 589.7bn in Jan-Feb, meaning that the bonus was likely fully paid out. The remaining part of the expenditure increase should be on account of the 15% hikes in public administration, local governments and social sectors, we believe.

Some spillover is possible in the February wage data, we would imagine, inasmuch as it appeared that the payout of the bonus continued in February. The data from 2022, when the first such bonus was distributed, also showed the main impact coming in the first month of the payout - February, but the Mar 2022 data was also elevated compared to the usual trend in the adjacent months, possibly suggesting some minor spillover.

Question:

Can you tell me the %s for Tisza + Fidesz for this Zavecz and 21 Research Centre polls, with the 3 categories of likelihood to vote, and the same for their last poll?

The question was asked in relation to the following story: Support for Tisza rises m/m, voters withdraw from Fidesz - ZRI

Answer:

ZRI:

March

• All voters - Tisza 39%, Fidesz - 31%
• Decided voters - Tisza 50%, Fidesz - 39%
• Decided voters certain to vote - Tisza 51%, Fidesz - 38%

February

• All voters - Tisza 38%, Fidesz - 32%
• Decided voters - Tisza 48%, Fidesz - 40%
• Decided voters certain to vote - Tisza 50%, Fidesz - 38%

21 Research Centre:

Current - Mar 23-28

• All voters - Tisza 40%, Fidesz - 28%
• Decided voters - Tisza 54%, Fidesz - 38%
• Decided voters certain to vote - Tisza 56%, Fidesz - 37%

Previous - Mar 2-6

• All voters - Tisza 38%, Fidesz - 30%
• Decided voters - Tisza 51%, Fidesz - 41%
• Decided voters certain to vote - Tisza 53%, Fidesz - 39%

• PMI survey already shows broader effects from Iranian conflict, we think
• Delivery lead times, purchasing price indices show largest m/m deterioration

The Purchasing Managers' Index (PMI) fell by 0.8pts m/m to 50.4pts in March, the logistics association Halpim reported. The PMI value for February was revised slightly down by 0.1pts with the current release. The PMI reading for March was below average, as it was both below the long-term average of 52.6pts and below the March average for the past three years of 51.8pts. The PMI returned close to the stagnation mark in the past three months, but it still rather indicated positive prospects for manufacturing, in contrast to the sustained actual contraction in the sector, we note. We think that the March downturn could be partly on account of deteriorating business sentiment following the escalation of the Iranian conflict. The prospect for the conflict to continue makes it likely that the PMI could take a further hit in April, especially as the impact of the war in Iran could filter more strongly into the business environment through supply chain disruptions and rising energy costs, we believe.

Data Download

Eight of the PMI sub-indices were in the positive territory in March but mostly around the neutral threshold of 50pts, the compiler said. Both the new orders and production sub-indices lost ground m/m but continued to signal expansion. Inventories of finished goods increased m/m, in our opinion confirming the general signal for softening of the demand conditions. Employment plans weakened further and the average tendency for companies was to shed jobs, the survey suggested. Both the export and import indices showed slowing growth during the month.

Relatively large swings were reported in the delivery lead times and the purchase price indices, which we consider a confirmation that the March PMI survey already captured some effects from the increased geopolitical tension. The delivery lead times index fell by 4.9pts m/m and was considerably below the neutral threshold at 36.8pts, showing significant supply chain disruptions, we believe. The purchase price index was up by 9.5pts m/m and indicated sharp acceleration of cost pressures, in our view mainly a result of the global energy price hikes.

Deficit exceeds another barrier (Gazeta Wyborcza)

Some 47% of Poles say they are cutting spending due to Iran war (Rzeczpospolita)

What does president want to achieve [president accepted only 2 of the 6 Constitutional Tribunal judges named by the Sejm; total political war cont.] (Rzeczpospolita)

Does US president really want to pull out of NATO? (Gazeta Wyborcza)

President chooses judges [front-page story on govt-president clash over Tribunal judges; govt to find way around president's refusal to swear in judges in what is usually a ceremonial role] (Gazeta Wyborcza)

Radoslaw Sikorski's weak April Fool's joke [Sikorski joked that Nawrocki named 42 new ambassadors; sides are precisely fighting over ambassadors] (Rzeczpospolita)

Is Korona's Braun's polling decline due to PiS choice of Czarnek as PM candidate? [PiS has risen in some polls, but too early to say and far right still polls high] (Rzeczpospolita)

Interview with PFR vice president: between inflation and growth -- another test for central banks (Rzeczpospolita)

Orban let Hungarians go empty-handed (Rzeczpospolita)

What Americans are talking about with Belarus (Rzeczpospolita)

Right-wing criticises health education textbook (Gazeta Wyborcza)

• Only 20% reckon Trump's moves have helped Poland

A full 59.9% of Poles believe that US President Donald Trump's actions on the international stage have not worked to Poland's advantage, according to an online survey done Apr 1 on a national sample and published Wed. by Onet.pl. Some 19.9% disagreed and said Trump's global moves had benefitted Poland, with 20.3% not being able to answer.

Overall, the poll was done online and thus might lead to some bias, though the pollster, SW Research, is not biased one way or another. The poll does not ask whether Poles support America and the war in Iran, which has directly boosted retail petrol and diesel prices, will clearly lead many to question Trump's decision to attack Iran. But the poll is characteristic of the change in Poles' attitudes to the US. Though the opposition Law and Justice (PiS) is a big MAGA supporter, Polish society is more openly questioning of the US than it has ever since political and economic transformation in 1989. Trump's reluctance to question Russia, Poland's clearest threat, and the fact his Iran war has helped Russia immensely worry many in Poland. Now with Trump talking about pulling out of NATO, moods in Poland are only likely to shift further since the US no longer seems like a trustworthy ally. That said, the US is clearly still the pre-eminent global military power and Poland is definitely going to want to keep ties as friendly as possible.

• Judgement is not yet final and Health Ministry vows to appeal
• PM Tusk blames 'stupidity' of PiS-era govt

A court in Brussels has ordered Poland to pay EUR 1.3bn to Pfizer for 64mn COVID-19 vaccine doses that were ordered but never taken. In April 2022, the Health Ministry under the then Law and Justice (PiS)-led government informed Pfizer and the EU commissioner for health and food safety that it would not accept a vaccine shipment, citing a number of legal arguments and factual circumstances to support its position, including the then recently broken out war in Ukraine. Poland also did not need the quantity of vaccines contracted in step with other European countries. The ruling is not yet final. Romania was also party to the case in Brussels and was ordered to pay EUR 0.6bn.

PM Donald Tusk said on X that it looked like Poland would have to pay over PLN 6bn for the "extreme stupidity" of the government of then PM Mateusz Morawiecki. He noted the government had ordered the vaccines and then didn't pay. "And unfortunately, this is not April Fool's Day," Tusk noted. EUR 1.3bn is worth around PLN 5.6bn according to today's exchange rate.

The Health Ministry said that the government would exercise all legal appeals. It noted on X that the First Instance Court in Brussels issued a non-final judgment against Poland. It said that Poland has the right to appeal, and the appellate proceedings are a full-fledged procedure in which it is possible to raise both previous and new legal and factual arguments. After the issuance of a decision by the second instance court, it is also possible to file a cassation complaint. "Poland intends to make use of all legal remedies available to it in order to change this judgment and defend its interests," it said.

Overall, for some context, the PLN 5.6bn award is about what it costs to keep fuel prices down through June. With court decisions, though, it is unclear when a final, binding decision will be made, meaning the question of Poland possibly having to pay Pfizer is some way off. But though PLN 5.6bn is not a huge sum, in the context of Poland's ongoing deficit problems, it will definitely not help the situation.

• KO leads way with 32.5% in March, according to eWybory polling avg
• PiS is second with weak 24.7% as far right parties remain strong
• KO-led block to get 208 seats and PiS-Konfederacja to get 210 seats
• But PiS-Konfederacja could invite anti-Semitic Korona to form majority at some risk

The senior ruling Civic Coalition (KO) continued to lead the way in polls in March, but it also continues to face the problem that its potential coalition allies aren't doing well enough to give it a majority after the autumn 2027 elections, meaning a far right group might be able to take over. According to a polling average compiled by the website eWybory, the KO's average support was 32.5% in March, which was up from 31.5% in February and 32.3% the year before. The KO's problem is that only the junior ruling Left now polls above the 5% threshold -- the Left polls at 5.9% -- and thus the potential KO-Left-Polska 2050-Polish Peasants' Party (PSL) coalition would have only 208 seats, which is well short of the 231 needed for a majority.

The main opposition Law and Justice (PiS) continued to poll weakly, taking 24.7% in March. Though that was up from 24.2% in February, it is well down from 28.2% the year before and historically weak. PiS has, however, looked stronger since PiS leader Jaroslaw Kaczynski presented Przemyslaw Czarnek as its PM candidate and the latter has launched far-right attacks. PiS's main problem continues to be less the clash with the KO but competition from the far right.

The far right Konfederacja got 12.4% in the poll, down from 13.1%. The even farther right Konfederacja of the Polish Crown (Korona) received 8.5%. PiS, Konfederacja, and Korona all, to some degree, fight to be the most right-wing party, but with the exception that Korona is more or less openly anti-Semitic.

If current polling levels continue, PiS will have a big decision. It and Konfederacja could muster 210 seats, meaning they would need Korona's 42 seats to form a majority. The US ambassador to Poland has already warned PiS not to form a deal with Korona, though it remains to be seen if PiS will listen. PiS desperately wants to remove the KO from power and, as it has also moved to the right, one shouldn't be surprised by a far right anti-Semitic government in Poland.

Yet, we would also caution that much could change. The PSL has been performing better of late, and we think the PSL will likely qualify for seats. There could also be coalitions that change polling levels, and upstart parties like Korona do often lose support the more their policies are actually known. In the end, we think the 2027 election is still either side's to win and much will depend on events leading up to the vote, with the threat of a split parliament and repeat vote higher than normal.

• Tabloids again focus on salaries of leading NBP members

The NBP published Tues. the salaries for NBP executives and tabloids are again making much of the massive (for Poland) salaries and the big wage gains, according to Fakt. Glapinski's salary jumped 12.9% to PLN 1.59mn in 2025 from PLN 1.37mn in 2024. The focus was also on Glapinski's key ally, former First Deputy Governor Marta Kightley, whose term ended on Mar 8. Her salary was PLN 1.29mn, up 13.2% from PLN 1.14mn in 2024. Fakt's story on the issue focuses on Kightley's salary breakdown, including that it exceeded PLN 220,000 in at least one month and which is compared with an average salary of PLN 9,100 or so for the same month.

Overall, any prolonged focus on NBP salaries does raise the risk of more populist moves from the ruling coalition, though Glapinski's provision of an "excuse" for President Karol Nawrocki to veto the EU SAFE implementation bill is likely sufficient for the government to consider upping the attacks on the NBP head. As for Kightley, Glapinski has motioned for her to get a second term, but there's been no sign yet if the president will agree to name her. There has been talk that Glapinski's support for the 'Polish SAFE 0%' plan was in part based on his desire to secure a term for Kightley. Still, any decision here would require a counter-signature from PM Donald Tusk, and the latter is likely to see any move as part of the political war, suggesting a new term for Kightley will depend on what the NBP/president can give the government.

• Non-sa jobless rate holds at 3.2% in Feb, same as revised Jan total

Poland's EU-harmonised unemployment rate held at 3.2% in February, matching the revised January total and in fact remaining at 3.2% for the eighth month running, according to seasonally but not calendar-adjusted Eurostat data published Wed. The jobless rate rose 0.1pp y/y from 3.1% the year before. The seasonally adjusted unemployment number was 577,000 in February, rising from 565,000 in January but falling from 618,000 the year before.

The non-adjusted unemployment rate rose 0.1pp m/m to 3.6% in February, hitting the highest since April 2021. The unseasonally adjusted jobless rate remains well below the 6.1% registered unemployment rate reported for February by Statistics Poland (GUS) on the basis of labour office data. The unadjusted Eurostat-reported unemployment total was 640,000, compared with a registered unemployment total from GUS of 954,900 for February.

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.

• Energy Ministry says petrol price cap is to rise 0.3% to PLN 6.23
• Ministry says diesel price cap is to fall 0.1% to PLN 7.65

Poland's Energy Ministry officially announced Wed. the maximum fuel prices to be in effect on Apr 2 and that are to see the petrol cap with VAT rise but the diesel one fall slightly, according to a statement in the Official Gazette. The basic unleaded 95-octane price will rise 0.3% to PLN 6.234 (with VAT and other charges) from PLN 6.21 on Apr 1. The premium 98-octane price with VAT will rise 0.4% to PLN 6.84 from PLN 6.81 a litre. The diesel price cap will fall 0.1% to PLN 7.65 a litre from PLN 7.66.

Overall, if the new fuel price caps are in effect for all of April, the fuel index in CPI inflation will rise around 3% and add some 0.2pp to headline inflation. If the pre-price freeze prices were in effect, the rise would have been some 17% y/y in April and the addition to CPI inflation some 0.9pp. The Energy Ministry will set the maximum price daily, with the Fri. price in effect for weekends or the previous day price in effect for holidays.

• Analysts raise CPI inflation forecast to 2.9% for 2026 and 2.7% for 2027
• Analysts hold GDP growth forecast at 3.6% for 2026
• Analysts raise average rate forecast to 3.74% for 2026

The NBP's updated Survey of Professional Forecasters saw local analysts raise their CPI inflation forecasts while largely holding their GDP growth view, according to a report published Wed. and based on a survey conducted Mar 5-20. Analysts raised their CPI inflation forecast to 2.9% for 2026 from the 2.6% given in the previous survey done in December. For 2027, analysts slightly hiked their inflation forecast to 2.7% from 2.6%, and analysts forecast 2028 at 2.6%. All forecasts remain within the 1.5-3.5% band around the NBP's 2.5% inflation target.

Analysts held their GDP growth forecast at 3.6% for 2026. They raised their 2027 forecast to 3.2% from 3.0% before and forecast that growth in 2028 would be 2.9%.

Analysts raised their average benchmark rate forecast to 3.74% for 2026 from 3.69% before. That would imply the year is to see mostly flat rates, though with a cut late in the year. For 2027, the average rate forecast was raised to 3.60% from 3.42% before, suggesting some room to cut in 2027. The 2028 forecast is for 3.38%, which would imply further cuts and a benign inflation expectation for the years after 2028.

Of the other forecasts, one can clearly see the impact of the war in Iran, as the average oil price is expected to be much bigger than before, though the ultimate impact on the inflation forecasts was not large. The EUR/PLN has weakened slightly since the war was launched by the US/Israel, but there isn't much more weakness expected. Eurozone growth is also expected to largely hold up, though to remain muted.

Overall, inflation jumped to 3.0% y/y in March from 2.1% in February due to the Iran war. The government has launched measures to lower fuel prices that will go into effect from April, though inflation will still be boosted. There is, however, a lot of uncertainty about how the war will ultimately impact other prices. It seems likely that the Monetary Policy Council will remain rather cautious and wait until the shocks triggered by the war wane before embarking on any new moves. Only if inflation were bound to top 3.5% y/y and if there were signs of, say, faster wage growth would a hike be likely, in our view. Whether the MPC can return to cuts remains to be seen.

Click here for our comprehensive database of macro forecasts.

Question:

What is the minimum excise duty on petrol and diesel allowed by the EU?

The question was asked in relation to the following story: PM announces VAT and excise tax cuts for fuel and windfall tax for oil firms

Answer:

This site from the EC has all the minimum excise taxes: https://trade.ec.europa.eu/access-to-markets/pl/content/akcyza.

It has the following information for fuel:

Petrol

Unleaded petrol: EUR 359 per 1000 litres.

Diesel oil

Used as propellant: EUR 330 per 1000 liters.

Used for some industrial and commercial purposes: EUR 21 per 1000 litres.

Used for heating purposes (both business and non-business purposes): EUR 21 per 1000 litres.

• PMI recovers from February fall

Poland's manufacturing PMI rose 1.6pts m/m to 48.7 in March from 47.1% in February, thereby coming in much higher than a consensus that was also at 47.1, according to a statement published Mon. by S&P Global. The index remained in negative territory for the eleventh straight month. Polish manufacturers were said to have increased production in March, though the volume of incoming new orders continued to decline. There was also a steep rise in cost pressures in the goods-producing sector and longer lead times due to the war in the Middle East.

Data Download

Production actually increased production in February, doing so for the first time in 11 months, though the rate of growth was said to be weak and was limited by a lack of incoming new work. Moreover, new orders declined for the 12th month running due to weaker market conditions and uncertainty regarding the war in the Middle East. Still, despite a sharper drop in export demand, the rate of contraction in total new orders eased since February. Backlogs fell further in March, companies shed staff for the 11th month running, and purchasing activity was reduced again.

Price pressures rose steeply on the back of the impact of the war in the Middle East, which was said to have led to higher costs for energy, fuel and commodities. Input inflation hit the highest level since October 2022. Output inflation also rose, doing so at the strongest rate since January 2023.

Despite the negative print, the outlook was still positive and manufacturers expected output to grow over the next 12 months. The degree of confidence did ease to a three-month low, but the reading remained above the long-run average. Company optimism was based on the expectation of increased demand, a market recovery, and company developments, including investment in new production capacity and the acquisition of new customers.

Overall, the PMI data is collected in the second half of the month and so the responses fully take into account the initial impact of the war in Iran. That does make the recovery somewhat surprising, especially compared with the big lurch seen in February, a month in which conditions and the outlook should have been far rosier than the current, opaque view. January and February did, however, see cold weather and perhaps improvement there, the fact fuel shortages seem unlikely in Poland, and the continued inflow of EU funds combined with a solid enough economy have kept companies relatively optimistic. Like for so many variables, however, much will depend on how long the war runs and how big the ultimate shock is.

• GUS estimates deficit at 7.2% of GDP in 2025, exceeding govt target of 6.9%
• Deficit widens sharply from revised 6.4%
• General govt debt rises to 59.7% of GDP in 2025 from 54.8% in 2024

Poland's general government deficit widened to a worse-than-expected 7.2% of GDP in 2025 from a revised 6.4% in 2024, coming in worse than the government target of 6.9%, according to data published Wed. by Statistics Poland (GUS). GUS warned that the data are preliminary can be revised. It will release updated GDP numbers for 2022-25 on Apr 16. Then on Apr 22, Eurostat will publish its debt and deficit notification for 2025 that will include the most up to date data. GUS did not make any comment.

General government gross debt widened to 59.7% of GDP in 2025 from a revised 54.8% in 2024. Though the public debt data released earlier this week by the Finance Ministry had suggested the 60% of GDP threshold was crossed last year, the GUS data is just below that mark. It remains to be seen if the coming revisions will alter this picture, but for the first time Poland's general government debt is near the key Maastricht threshold.

Overall, the government planned to cut the deficit from the target of 6.9% of GDP to 6.5% in 2026, but we haven't yet seen any comment about whether the target has changed with the worst-than-expected outturn. As far as we can tell, Poland had been meeting the net expenditure targets that are part of the Excessive Deficit Procedure (EDP), but the slight outturn does raise some uncertainty. There does not seem to be any near-term risk of EU funding cutoff due to the EDP, but the European Commission (EC) will likely have more to say in its spring fiscal reviews. The government did seem to have some fiscal space from a 2025 that wasn't as bad as expected, the moving of some VAT refunds to last year, and can likely afford the PLN 1.6bn cost of the fuel tax cuts, but the question is how long it can afford this.

• Rising oil prices drive raw material imports to USD 23.2bn
• Middle East conflict cuts consumption goods exports by 15.3% y/y
• Rolling 12-month deficit stretches to USD 98.3bn, signalling further pressure

The foreign trade deficit expanded markedly by 56.6% y/y to USD 11.3bn in March, the trade ministry's preliminary data revealed. The deterioration was primarily import-led, with imports rising by 8.4% y/y to USD 33.2bn. By component, the increase was mainly on the back of raw materials imports, which climbed by 11.5% y/y to USD 23.2bn. We attribute this to the recent upswing in global oil prices. Imports of investment goods also posted a notable increase, rising by 7.9% y/y to USD 4.0bn, while consumption goods imports fell by 5.3% y/y. In regional terms, EU-origin imports accounted for the largest share, followed by Asian countries and other European countries.

Exports fell by 6.4% y/y to USD 21.9bn in March, adding further pressure to the trade balance. The decline was led by consumption goods exports, which dropped by 15.3% y/y to USD 6.7bn. We link this weakness to the ongoing conflict in the Middle East, a key destination for Turkey's exports. Raw materials exports and investment goods exports also moved lower, declining by 2.6% y/y and 2.7% y/y, respectively. From a regional perspective, the EU remained the largest export market, followed by other European countries and Middle Eastern countries. Exports to Gulf countries declined by 40% in March and the nominal export loss due to the Iranian conflict amounted to EUR 800mn, trade minister Omer Bolat commented.

The cumulative picture showed the same pattern. The trade deficit expanded by 27.5% y/y to USD 28.7bn in Q1. On a rolling 12-month basis, it rose by 16.4% y/y to USD 98.3bn. In the near term, we anticipate further widening, as the latest escalation across the Middle East has driven oil prices higher, increasing the import bill while also weighing on export performance.

• Iran war and falling gold prices heavily depress consumer buying power, in our view
• Q1 sales decline by 3.9% y/y, though LCV volume shows slight growth

New vehicle registrations contracted by 12.5% y/y to 101,997 units in March, the Automotive Distributors and Mobility Association (ODMD) data showed. Both segments weighed on the headline figure. Passenger car registrations retreated by 13% y/y to 79,857 units, while LCV registrations were down by 11.7% y/y, settling at 22,140 units. We ascribe this broad-based softness to two primary drivers. First, the ongoing Iran war has materially disrupted consumer confidence and purchasing power, as heightened geopolitical uncertainty and supply-side pressures have prompted households to defer large-ticket expenditures, vehicle purchases included, we assess. Second, the wealth effect previously reinforced by rising gold prices has begun to unwind in tandem with the recent pullback in gold valuations, thereby eroding household net worth perceptions and curtailing discretionary spending capacity. This dynamic has visibly fed through into subdued showroom demand, in our view.

On a cumulative basis, new vehicle registrations edged down by 3.9% y/y to 265,398 units in Q1. The drag was mainly on the back of the passenger car segment, which contracted by 5.9% y/y to 210,688 units. LCVs, by contrast, held up comparatively well, posting a 4.2% y/y uptick to 54,710 units during Q1.

• CHP allegedly readies deputy resignations to force parliamentary by-election threshold
• Parliament controls resignations so ruling bloc decides whether resignations clear chamber and trigger vote
• CHP also weighs council walkouts where party holds strong local majorities
• Local re-votes begin only if substitutes fail to keep councils working
• Raids spread across CHP municipalities and may reach Ankara leadership, we caution

The CHP was allegedly working on a two-stage political strategy aimed at forcing an early election after operations targeting opposition-run municipalities regained momentum, BBC Turkish reporter Ayse Sayin claimed. Speaking at his party's parliamentary group meeting, CHP leader Ozgur Ozel signalled that the party was preparing an assertive move to push for a by-election according to Sayin, while also indicating that collective resignations in municipal councils, including in Istanbul metropolitan municipality, remained among the options under consideration. Ozel's remarks came amid a broader opposition narrative that the government intensified pressure on CHP-run municipalities through judicial and administrative action, Sayin interpreted.

The first leg of the plan reportedly focused on triggering a parliamentary by-election, she noted. Under Article 78 of the Constitution, a by-election could be held once in a legislative term provided that 30 months passed since the general election and more than one year remained before the next one, conditions that were already met based on the May 14, 2023 vote, she said. In addition, a by-election became mandatory within three months if vacant seats in parliament reached 5% of the chamber, equivalent to 30 seats. With eight seats already vacant, the CHP was said to be considering the resignation of at least 22 deputies to cross that threshold, she indicated. However, the strategy faced a major institutional hurdle because resignations by MPs required approval by the Parliament, making the stance of the ruling bloc decisive for any such effort.

The second leg of the strategy reportedly centred on forcing renewed local elections through municipal councils. Under the law on local administration elections, collective resignations alone did not trigger an immediate by-election, as vacant seats first had to be filled by substitute members. Elections were renewed only if council membership still fell below half of the legal total after substitutes were exhausted. In that case, the local administrative authority has to notify the district election board within 30 days, after which the board sets the vote for the first Sunday following the 60th day after the announcement. Importantly, such a renewal applied only to the specific municipal council concerned, not to municipalities nationwide. The CHP planned to pursue this route only where it held a clear council majority in order to reduce the risk posed by substitute members, Sayin claimed.

We searched back for the 2024 local election results found that CHP held council majorities in 14 metropolitan municipalities, 21 provincial municipalities, and 337 district municipalities. This meant, in our view, that the decisive factor was not merely the collective resignation of CHP councillors, but whether the substitute pool also proved insufficient to keep the council above the legal threshold. The process therefore depended neither on parliamentary approval nor on presidential consent, but on a defined administrative and electoral timetable once the statutory condition emerged, we assess. The mechanism also did not reopen local elections across the board, it affected only the municipality in which the council became numerically inoperable, we note. In addition, no such by-election could be held if less than one year remained before the next general local elections, making timing a central consideration for the feasibility of the plan. However, we note that these require advanced law knowledge, so that the information we provide here, needs to be treated with caution.

Overall, the two-stage plan appeared designed not only to force technically viable election mechanisms, but also to push Turkey back into an overt election climate, we think. Even if the government resisted the initiative, the CHP likely calculated that such resistance could strengthen a public narrative that the ruling bloc was avoiding the ballot box, we assess.

Concerning the ongoing operations against CHP led municipalities, we think it could widen further and eventually extend to Ankara metropolitan mayor Mansur Yavas and the broader CHP leadership. To present the most current status of the situation in a clear and structured manner, we have prepared the below table, which brings together the municipalities concerned, the individuals involved, the nature of the allegations, and the latest judicial and administrative outcomes. Overall, the table suggests that pressure on the opposition has continued to mount, widening over time both in scale and in political reach. 21 mayors had been arrested since Oct 2024, while only two had later been released, one mayor was detained but not arrested and later returned to office, while another was detained at the time of publication with no arrest decision yet reflected.

Justice minister Akin Gurlek: Death penalty, which is applied only to Palestinians, is clearly in contradiction with universal law (Hurriyet)

CHP convention trial is postponed to May 6 (Hurriyet)

President Erdogan against CHP: They turned municipalities into their personal fiefdoms (Hurriyet)

Days of continuous rain fill Istanbul's dams (Sozcu)

Istanbul metropolitan municipality trial continues on its 14th day (Sozcu)

Bread prices increase by 16.7% (Sozcu)

Manufacturing PMI is at 47.9pts in March (Sozcu)

Crude steel production increases by 3.4% y/y in February (Sozcu)

Istanbul Sabiha Gokcen airport is at top in Europe in terms of passenger growth (Sabah)

Vice President Cevdet Yılmaz on sliding scale mechanism: We ensure that impact of fuel price increases is more limited (Sabah)

FinMin Mehmet Simsek: We are implementing our programme with determination (Sabah)

• Next MPC meeting: Apr 22, 2026
• Current policy rate: 37.0%
• EmergingMarketWatch forecast: Hold, with hike risk
• Rationale: Capped fuel pass-through and stable domestic FX demand support a hold, but reserve losses and prolonged war-driven oil risks keep hike firmly on the table, in our view

Our base case remains that the CBT leaves the policy rate unchanged at the upcoming MPC meeting, although the recent geopolitical shock has made the risk of a sizeable tightening step materially more relevant. The escalation in Middle East tensions has pushed oil prices roughly 30% higher, and we expect that shock to feed at least partly into March headline inflation through the fuel price smoothing mechanism. Our latest models point to monthly inflation in the 2.1%-2.4% range. Even so, upside risks remain in place, most notably due to stronger travel demand during the Ramadan holiday, a trend already visible in today's figures released by the Istanbul Chamber of Commerce.

Data Download

In our view, the case for a hold still rests on three main considerations. First, the sliding-scale mechanism has capped the pass-through from higher oil prices to domestic fuel prices, thereby limiting the immediate inflation impulse. Second, based on the market colour we have followed, the outbreak of the Iran war did not trigger an immediate domestic rush into FX. Third, recent remarks by US President Trump suggest that the conflict could end within two weeks. If that proves correct, the next MPC meeting would take place roughly one week later, by which time market conditions may have stabilised sufficiently for the CBT to preserve its current stance.

That said, a rate hike remains a live possibility. In our assessment, the first trigger would be the scale of reserve loss since the war began. The CBT has already drawn down reserves materially, including gold holdings, which marks a notable departure from recent practice. It has also resumed FX-backed lira swap auctions after a year-long pause. Taken together, these steps suggest that the Bank's immediate concern centres on reserve depletion. Market talk also indicates that the CBT has lost almost all carry trade positions, which may increase its willingness to tighten in order to restore investor interest. Against that backdrop, the recent presence of FinMin Mehmet Simsek and CBT governor Fatih Karahan in London may also reflect an effort to rebuild external confidence.

The second trigger would be a longer-than-expected conflict that drives oil prices sharply higher and keeps them there. Under such a scenario, the CBT may be compelled to raise the policy rate by 300bps to 40%, bringing it into line with the overnight lending rate, at which it has effectively been funding the market. If that were to happen, the Bank may also need to recalibrate the corridor once again in order to align the formal policy framework with prevailing funding conditions.

With three weeks still remaining until the meeting, we will continue to monitor both market developments and the course of the Iran war closely, and we will reassess our view should conditions shift materially.

Overall, whatever decision the CBT ultimately delivers, we do not interpret it as evidence that the Bank is positioning policy in a manner consistent with reaching its 16% year-end inflation target. In our view, a genuinely serious commitment to that target would require a much larger policy-rate increase, to which we assign zero probability. By neither revising its year-end inflation target nor raising the policy rate meaningfully, the CBT is allowing the credibility gap to widen further.

Summary of March rate-setting meeting

MPC rate decision in March

Quarterly Inflation Report for Q1

Monetary policy strategy for 2026

• Our EMW forecast model matches this range, confirming its accuracy and robustness
• Government absorbs most fuel price hikes, limiting budget impacts to 0.6% of GDP
• Oil at USD 85 widens current account deficit by 1.1-1.4% of GDP
• Simsek highlights buffers as disinflation and reform stay in focus

The upward impact on inflation would reach 3.6-4.4pps if average price of Brent crude remained at USD 85 per barrel, FinMin Mehmet Simsek stated during investor meetings in London, the local media reported. This figure aligned precisely with the upper boundary of our own forecasting model, which placed the benchmark inflation expectation at 26.1%, with the ceiling scenario pointing to 30%. The convergence between Simsek's remarks and our internal projections further validated the robustness and accuracy of our analytical framework.

On the external balance side, oil averaging USD 85 per barrel would place an additional burden on the current account deficit equivalent to 1.1% to 1.4% of GDP, Simsek noted. Turkey's fuel pricing mechanism allowed the public sector to absorb approximately 75% of price increases, keeping the budgetary impact contained at just 0.6% of GDP, he highlighted.

Simsek pointed to several structural buffers that enhanced Turkey's resilience against external shocks. These included a relatively low public debt ratio of 23.8% of GDP, a well-capitalised banking sector, rising foreign exchange reserves, and a declining external financing requirement, he noted. The presentation also covered green transition initiatives, growing service revenues, and rising high-technology exports as factors expected to support current account rebalancing over the medium term, according to the media.

The minister reaffirmed that disinflation and structural reform remained the government's top priorities, adding that Turkey will convert crises into opportunities. He pointed to a persistent negative output gap as a supporting condition for the ongoing disinflation process. Leading indicators, he said, continued to signal further disinflation momentum, and rental inflation already began to moderate. On drought risks for 2026, Simsek noted these diminished considerably. Household demand for foreign currency stayed limited, and foreign investor outflows remained contained, both conditions reinforcing macro-financial stability, he concluded.

• Obligations rise to USD 14.1bn if we count all payments to IFIs
• Figure excludes BCRA's own FX obligations
• Planned financing sources include USD 4bn in bond issuance, USD 2bn from IMF, and up to USD 2bn from privatization

The federal government faces approximately USD 10.6bn in FX debt payments the rest of 2026, we estimate from the latest update to quarterly public debt data published Wed. The estimate rises to USD 14.1bn if we include gross payments to IFIs other than the IMF, but we believe it is safe to assume that most payments to those organizations will be refinanced.

Our estimates are shown in the table below. Debt analysis should also consider the BCRA's FX bonds and repo payments due in the coming years, which are not included in this table. More information about those BCRA liabilities can be found here.

Overall, the government intends to cover its short-term FX debt through at least USD 4bn in FX bond issuance in the local market, USD 2bn from IMF disbursements, privatization proceeds of up to USD 2bn, and the rest through other operations, which could include new loans and repos, or direct USD purchases from the BCRA.

• Decline tied in part to exchange rate effects on ARS debt
• Main change in debt composition was govt taking on new IMF loan and using proceeds to repay BCRA debt
• We estimate debt with private sector at USD 290bn (42.4% of GDP)

The federal government's gross debt declined 2.6% y/y to USD 455bn (66.6% of GDP) at the end of 2025, according to quarterly data updated Wed. by the Economy Ministry. If we exclude exchange rate effects from the conversion of ARS debt into USD, we can say the debt was basically unchanged y/y in nominal terms. This measure includes intra-public sector debt, of which the most relevant holders are the BCRA and the social security agency. We estimate debt with the private sector at approximately USD 290bn (42.4% of GDP).

The main change in debt composition in 2025 was that the government increased its debt to the IMF through a new frontloaded Extended Fund Facility (EFF), which was used to repay Treasury bills held by the BCRA. If we compare end-2025 to end-2024, local currency debt declined mainly due to exchange rate effects. These exchange rate effects are being reversed in early 2026, but the government also reduced its debt through partial rollovers at primary auctions, so the next quarterly debt report may show stability in the local currency portion.

Petrobras raises price of aviation kerosene by 55% (Agência Brasil)

Petrobras announces it will phase in increase of aviation kerosene prices (Carta Capital)

Airlines foresee 'severe consequences' from increase in aviation fuel prices (CNN Brasil)

With state support, the diesel [subsidy] bill will be introduced this week, says FinMin Durigan (Valor Econômico)

Diesel subsidy could cost up to BRL 4bn across two months, says [FinMin's] Ceron (O Globo)

Lula says he won't let 'Trump and Netanyahu's war' affect prices in Brazil (Folha de São Paulo)

Durigan: New debt renegotiation program expected to offer discounts of up to 80% (UOL)

Proposal by Finance Ministry to renegotiate consumer debt is expected to require government guarantees (Estadão)

Lula endorses Camilo Santana as his likely successor in national politics (Veja)

• Lula says he has ambitions for Camilo beyond state-level politics
• Grooming a successor is likely to be a key priority if Lula is reelected

President Lula da Silva said Wed. that he has ambitions for former Education Minister Camilo Santana beyond state-level politics, suggesting he may be his future successor, according to remarks made during an interview with a local outlet. Lula added that Camilo will play an important role in supporting his reelection campaign, particularly through his candidacy in Ceará.

Overall, building and strengthening a political successor is likely to become one of Lula's key priorities in the coming years, especially if he is reelected in October. Former Finance Minister Fernando Haddad has long been considered a leading successor, having run in the 2018 election while Lula was in prison. However, Haddad now appears less inclined to pursue a presidential bid, and his tenure as finance minister may have weighed on his popularity amid rising taxes. Another potential contender is Guilherme Boulos, a prominent politician from the Socialism and Freedom Party (PSOL). In our view, it is still too early to determine Lula's likely successor, but his remarks reinforce expectations that succession planning will become an increasingly important issue in the coming years, particularly as Lula's age advances.

• Ceron reinforces temporary nature of measure, says costs can be absorbed by budget without compensation
• New cost estimate is above the initial BRL 3bn

Finance Ministry Executive Secretary Rogério Ceron said Wed. that the cost of the government's proposal to subsidize diesel imports could reach up to BRL 4bn over the two-month period during which the measure is expected to be in place, according to remarks made in an interview with SBT. Ceron emphasized that the measure is temporary (two months) and that costs will be shared equally between the federal government and the states, implying up to BRL 2bn in costs for the central government. He added that the costs can be fully absorbed within the budget without the need for compensation, although the government continues to discuss the issue internally.

Overall, the revised cost estimate is above the initially expected BRL 3bn, which was also to be split equally between the central government and the states. The proposal sets a BRL 1.2 subsidy per liter of imported diesel as a way to mitigate the impact of higher international oil prices, to which most states have agreed. In our view, the upward revision reinforces uncertainty regarding the effective impact of the measure, both on domestic prices and on the government's fiscal position, thereby sustaining fiscal risks. The absence of a compensation mechanism for this subsidy could be partially offset by higher oil-related revenues given that Brazil is a net oil exporter. Meanwhile, the previously estimated BRL 30bn cost related to earlier diesel subsidies and tax exemptions is expected to be fully covered by the temporary export tariff on oil.

• International demand recovery helps mitigate monthly manufacturing contraction
• Input costs reach highest level in 18 months due to Middle East conflict, pressuring selling prices

The S&P Global Brazil Manufacturing PMI rose 1.7pts m/m to 49.0pts in March from 47.3pts in February, marking the second consecutive increase, according to data released Wed. Although it reached its highest level since May 2025, the index remained below the 50-pt neutral threshold for the eleventh consecutive month. S&P noted that a recovery in international demand helped mitigate the contraction in manufacturing output amid still weak domestic demand. New orders fell at a slower pace in March than they did in the previous month, and companies attributed the decline in output to cooling demand, the ongoing Middle East conflict, clients' budget constraints, and limited purchasing power. Employment rose marginally in March as companies increased hiring to build inventories amid external uncertainties while business optimism weakened.

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Input costs rose at their fastest pace in 18 months, reflecting higher international oil prices since the escalation of the Middle East conflict in late February, which in turn pressured selling price inflation.

Overall, while manufacturing activity remains constrained by a restrictive monetary policy, the Middle East conflict adds another layer of pressure on the sector due to higher energy prices. In this context, the expected benefits of monetary easing in 2026 are likely to be more limited than previously anticipated given higher inflation and a potentially smaller cumulative easing cycle, hindering manufacturing activity. As inflationary pressures persist and the government implements measures to mitigate the impact of higher oil prices, incoming data will be key to assessing the next steps of monetary policy.

• Subsidy to be exceptional and last up to two months once the related Provisional Measure is published
• Govt estimates costs of up to BRL 1.5bn

The government and state authorities are close to reaching an agreement on the proposed diesel subsidy, according to a statement published Tues. by Comsefaz. Both sides agreed that the measure will be exceptional and temporary, lasting up to two months once the Provisional Measure is published (which is expected by the end of the week). The proposal follows the government's plan to grant a BRL 1.2 subsidy per liter of imported diesel, to be shared equally between the federal government and the states, implying a cost of around BRL 1.5bn for the central government.

The government also noted that the subsidy could be implemented even if not all states join the initiative, in which case imported diesel in non-participating states would not be subsidized.

Overall, as diesel prices in Brazil remain under pressure from higher international oil prices amid the Middle East conflict, we believe it is unlikely that states will opt out of the initiative, particularly in an election year. The estimated BRL 1.5bn cost would add to the roughly BRL 30.0bn already expected from the existing subsidy of BRL 0.32 per liter and the reduction in PIS/Cofins taxes, although the bulk of these costs is expected to be offset by a temporary export tax on oil and diesel. It remains unclear whether the overall package will be fiscally neutral, but it is likely to help mitigate fuel price increases and ease inflationary pressures. Some concerns remain as subsidies can be difficult to withdraw once implemented. However, linking them to a temporary export tax may help ensure their eventual phase-out. Still, fiscal risks cannot be ruled out, particularly in an election year, as the government may face incentives to adopt additional price-containment measures ahead of the October vote.

• MPC meeting: Apr 28-29, 2026
• Current policy rate: 14.75%
• EmergingMarketWatch forecast: 25-bp cut (to 14.50%)

BCB Governor Gabriel Galípolo reaffirmed recently the Copom's conservative stance due to the uncertainties highlighted in the committee's latest meeting, but noted that Brazil is in a relatively comfortable position to deal with an external energy shock, thereby suggesting there continues to be some room for additional Selic cuts, in our view. Amid elevated uncertainties stemming from the Middle East conflict, Galípolo reiterated the Copom's data-driven approach, noting that future decisions will depend heavily on how higher oil prices affect domestic inflation and how effective government measures are in mitigating this impact. Still, he emphasized that the Copom's hawkish stance in 2025 has placed Brazil in a favorable position to deal with the external shock, supporting our expectation of another 25-bp cut at the next policy meeting on Apr 28-29. However, we believe it is too early to fully rule out a pause in the easing cycle as the impact of the Iran conflict remain uncertain.

The Middle East conflict prompted the BCB to raise its inflation forecast for 2026 to 3.90% from 3.50% in December, according to its latest quarterly forecast. This upward revision reflects both higher oil prices and a revised positive output gap, partially offset by currency appreciation and a marginal decline in inflation expectations. In this scenario, the BCB expects inflation to ease to 3.60% by end-Q1 2026 and then rise to 3.90% by year-end before gradually converging toward the target. It is worth noting that inflation expectations have increased in recent weeks, according to the Focus Report, which could push BCB inflation forecasts higher in the coming months and pressure for a smaller monetary cutting cycle. Still, we believe that the significant monetary tightening implemented in 2025, together with easing inflation and recent labor market data, should allow the Copom to deliver a 25-bp cut in April.

IPCA-15 inflation slowed to 3.90% y/y in March, falling below the 4.00% threshold for the first time since April 2024. This deceleration supports the BCB's view that monetary tightening has been effective, as noted of late by BCB Director Paulo Picchetti, and should be an important factor in the Copom's decision to consider another cut in April. However, IPCA-15 inflation came in above expectations, reflecting higher food and personal expenditure prices, and still does not fully capture the impact of higher international oil prices. Meanwhile, PPI inflation fell further to -4.47% y/y in February, driven by lower food prices.

The labor market -- an important concern for the Copom given its resilience -- has shown signs of deceleration. While unemployment rose to 5.8% in the rolling quarter ended in February, slightly above consensus, formal job creation increased at a slower-than-expected pace, marking its ninth consecutive annual deceleration. Reflecting the expected lagged effects of monetary tightening, these developments reinforce the effectiveness of monetary policy and likely support an additional Selic cut in April.

Overall, the Middle East conflict has clouded the Copom's near-term outlook, but the committee's conservative stance throughout 2025 has enabled it to begin easing in March and is likely to allow for another cut in April as the effects of the energy shock gradually materialize. Amid elevated uncertainty, the composition of inflation will be key in assessing the Copom's next steps. The BCB noted that core inflation slowed to 4.4% y/y from 4.7%, alongside a decline in the IPCA diffusion index in February, and these dynamics are likely to be closely monitored in the coming weeks. Looking further ahead, if a cut does materialize in April, we believe the Copom could then pause the easing cycle to assess the situation if external uncertainties persist.

• President says decision follows health reasons, anticipates de la Fuente's return once his rehabilitation concludes
• Roberto Velasco to become Foreign Ministry's head, once confirmed by the Senate
• Move doesn't seem part of a broader cabinet reshuffle

Juan Ramón de la Fuente is stepping down as foreign minister, President Claudia Sheinbaum announced on Wednesday. The decision is explained by health reasons, the president detailed, saying de la Fuente will return to her administration once he concludes his column rehabilitation.

The president announced Deputy Minister Roberto Velasco will assume control of the ministry. This is a positive announcement, considering Velasco is an experienced public officer. His confirmation is welcomed considering he is likely to play a role in the sometimes-thorny relationship with the US administration. However, we note the bulk of the relationship issues with the US are headed by Economy Minister Marcelo Ebrard, rather than by the Foreign Ministry.

Overall, we do not believe this is part of a broader reshuffle of the cabinet. We continue to expect such a reshuffle as the administration gets ready for the 2027 midterms and as the president might seek to tackle the cabinet members with tight links with ex-President Andrés López.

• Positive swing m/m isn't enough to erase negative trend, inflow falls 0.5% y/y in Jan-Feb

The remittance inflow grew by 0.4% y/y in February, in a welcomed swing from a 1.4% y/y contraction posted in January, per data published by the CB on Wednesday. This positive swing isn't enough to erase the negative trend, with the Jan-Feb inflow down by 0.5% y/y.

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The inflow plummeted when measured in Mexican pesos, given the currency appreciation. This is consistent with the adverse trend seen since mid-2025, trimming the positive impact of the remittance inflow on private demand.

Overall, the pace of remittances is disappointing to start the year but not surprising, in line with the poor performance posted through most of 2025. The prints suggest the remittance inflow might remain rather stable in 2026, with poor growth from a modest comparison base. This suggests the remittance inflow will not contribute much to the growth of private demand, which is set to be the economy's motor again in 2026.

• INEGI's PMI adds three months above 50.0pts benchmark
• S&P's PMI shows weakening manufacturing in March, exports and output lose momentum
• Inputs cost shows more significant upward pressure m/m

The Manufacturing Orders Index (PMI) rose by 1.05% m/m in March, per seasonally adjusted figures published by the stats office INEGI on Wednesday. This shows swift volatility from the 1.00% m/m sa contraction posted in February. Still, despite heavy volatility in recent months, the PMI adds three months above the 50.0pts benchmark, suggesting of relative strengthening in Q1.

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The improvement was crucially driven by strengthening of the expected output volume, up by 12.72% m/m sa in March.

The Purchasing Managers' Index (PMI) published by Standard & Poor's rose to 48.9pts in March, but showed the manufacturing industry weakening further in March, S&P said in a statement on Wednesday. The print is gloom, showing exports and manufacturing output losing momentum m/m. Further, the firms recorded higher input costs, due to tariffs, an unfavorable performance by the currency and the conflict in Iran.

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Overall, INEGI's and the S&P's PMI tell opposing stories, with S&P's result showing weakness that is consistent with evident adversity in the context of weak economic growth and price pressure from domestic conditions, tariffs, and an ongoing conflict in the Middle East. Indeed, we don't believe the manufacturing output is promising despite resilience shown in 2026, considering the war in Iran might hinder global demand and anticipating US protectionism remains volatile, pressuring the competitiveness of Mexican exports. On the other hand, higher oil prices may make Mexican exports more competitive in the US vs Asian goods, while a flight to quality may weaken the currency to erase the gains of recent months.

• Agreement should help contain inflationary pressure from conflict in Iran
• Part of the containment to come from Treasury's subsidy

The administration reached a deal with gas stations to hold diesel prices at MXN 28.28 per liter, President Claudia Sheinbaum announced on Monday. This adds to an existing deal to contain regular fuel prices. The measures should help limit the inflationary pressure brought about by the ongoing war in Iran. However, it's unclear to us if all diesel retailers will participate in the voluntary agreement or how broad this agreement will be.

In any case, we note part of the price stability will come from a subsidy implemented by the Treasury, cutting revenues from the IEPS tax applied on fuels. Indeed, we insist the inflationary effect in Mexico should be relatively limited, considering the country imports only about half of the gasoline it consumes and considering said Treasury buffer. However, the magnitude and length of the shock may slash the government's capacity to subsidize to avoid price hikes, with a contained but relevant upward pressure on the final price of fuel.

• Next MPC meeting: May 7
• Current policy rate: 6.75%
• EmergingMarketWatch forecast: Hold

The CB surprised a significant part of the market last week, cutting its Monetary Policy Rate (MPR) by 25bps. The decision wasn't a massive surprise considering the CB insists on a dovish discourse, minimizing inflationary pressure. However, we were surprised considering the magnitude of the inflationary pressure disregarded by the CB. In this scenario, the CB was clear to say the easing cycle will include only one more cut in the foreseeable horizon, without giving a clear timeline for the next cut.

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The March cut came from a 3-2 vote, showing the division within the board. Deputy Governor Jonathan Heath voted against the cut, unsurprisingly, considering he's been consistently the more hawkish board member, warning even rate hikes might be needed in the current inflationary scene, insisting the CB's goal is for CPI inflation to fall to 3.00%, not simply to fall below 4.00%, as the bulk of the board seems to believe.

Deputy Governor Galia Borja voted against the cut too. This is consistent with our view that the deputy governor is the least dovish of the dovish bunch. However, we note the deputy governor's position regarding the inflationary outlook and the drivers of policy rate decisions seems to have changed. While Borja highlighted the importance of curving core inflation a while back, she seemed to disregard lingering core pressures through 2025 and in early 2026. In this regard, it will be interesting to see if she comes back to focus on core inflation in this sitting. In this regard, the read of the sitting's minute, to be published on April 9, will be telling on Borja's reasoning. Indeed, we assume she'll highlight the uncertainty of the international scene, considering comments made in mid-March, saying the caution shown by the Federal Reserve was needed in the context of grave uncertainty because of the war in Iran.

While we had constantly anticipated the CB would be cutting its Monetary Policy Rate (MPR) by 25bps on Thursday, despite a disappointing performance by CPI inflation in February and new uncertainty brought about by the war in Iran, we believe the March H1 should have been too much for the CB to tolerate. Indeed, the dovish board minimized the acceleration seen in March H1, even though CPI inflation reached 4.63%, noting the acceleration was mostly driven by non-core inflation. However, this is an unfair argument, in our view, considering core inflation remains high, hitting 4.46% y/y during the fortnight and showing no path for general inflation to slow to the CB's 3.00% target.

The fact the dovish Monetary Policy Council (MPC) continues to disregard inflationary pressures and poorly anchored mid-term inflationary expectations should take a significant toll on the bank's credibility. Indeed, a new rate cut in the coming quarters will do little to add to this, in our view, with the damage already done.

Still, the main question left forward is when the CB will cut its policy rate for the last time in the cycle. A recent poll by Banxico shows 45% of the market anticipates the next cut will come in Q2, defying the inflationary pressure indeed. 66% believe the rate will come in either Q2 or Q3. We believe this consensus makes sense, with the timing perhaps depending on inflationary results of the coming fortnights, the magnitude of the inflationary pressure brought about by the conflict in the Middle East, and how they force the CB to revise its mid-term expectations, although we doubt the CB will revise its 2027 inflation expectations anytime soon, insisting inflation will slow to 3.00% by Q2, despite no arguments for such optimism, in our view.

Overall, we expect the CB will hold its MPR at 7.00% on Thursday. We changed our projection because of a disappointing performance by CPI inflation in March H1. We expect the hold to come from a unanimous board, but we won't be surprised if it comes from a 4-1 vote, with Deputy Governor Omar Mejía willing to vote for a 25bps cut despite lingering inflationary pressure, a disappointing performance in February and March H1, and new risks coming from geopolitical conflicts.

• Analysts' projections continue to diverge greatly from the CB's optimistic mid-term projections
• Still, 45% of the polled experts see a new policy rate cut in Q2, 66% project such cut by Q3-end
• Growth projections hold rather steady

Analysts polled by Banxico lifted their 2026-end, 2027-end and 2028-end CPI inflation forecasts in March, according to the latest poll among experts published by the CB on Wednesday. Analysts expect inflation to close 2026 at 4.21%, outside of the CB's tolerance band. Moreover, the market continues to see CPI inflation way off from the CB's 3.00% punctual target, with analysts expecting it will close both 2027 and 2028 above 3.70%.

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This continues to diverge greatly from Banxico's projections, with the CB forecasting CPI inflation will fall to converge to its 3.00% target by Q2 2027 and remain there into 2028. We insist this divergence weakens the credibility of the CB, as it continues to justify its ongoing easing cycle on these overoptimistic projections while paying no attention to the market consensus.

Despite these concerning inflationary projections, the market anticipates monetary easing in the coming months. 45% of the polled experts anticipate a new rate cut by Banxico in Q2, while 66% believe such cut will have come by Q3-end. We believe these projections are sound, considering the CB insists on its easing cycle despite lingering and new inflationary pressures. Indeed, we believe the debate is whether the last rate cut of the cycle will come in Q2 or Q3, with the recent surge of CPI inflation and Iran-driven fears perhaps determining the timing of such cut.

Finally, it's relevant to note the market upheld GDP growth expectations rather steady for the foreseeable horizon, seemingly anticipating no impact on growth from the Middle East conflict.

• Both return to positive ground after a two-digit collapse in the past few months
• Swift rebound surprises us, seems seasonally driven to us

Both manufacturing output and commerce sales expectations improved in March, per data published by the stats office INEGI on Wednesday. Commerce net sales expectations rose by 1.5pts y/y, diverging from a weak sentiment seen in recent weeks, while manufacturing output expectations rose by 1.1pts y/y.

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The manufacturing expectations recovery is fully driven by a seasonal effect, with manufacturing output expectations down by 0.1pts y/y when looking at seasonally adjusted data. However, the improvement in the retail industry is not erased with seasonally adjusted data, showing a 1.0pts y/y improvement.

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Overall, we're surprised to see market optimism regarding retail sales, given a few indicators showing a disappointing deceleration in early 2026. Moreover, our view is that market buzz is rather unoptimistic about the start of the year regarding private consumption, perhaps showing a slump from strong performance in late 2025. In any case, it remains to be seen if this rebound can be proven to be anything else than a fluke.

• Third deceleration in a row is promising, but in part explained by a base effect
• Only confidence in construction industry improves y/y
• Manufacturing and non-financial services confidence worsens its pace m/m

Business confidence declined by 0.9pts y/y in March, per data published by the stats office INEGI on Wednesday. This extends the current 23-month declining trend. However, on the bright side, this show a new deceleration of the contraction, adding a relative improvement of 2.9pts in the moving quarter. This deceleration of the decline is welcomed and promising; however, we note this relative improvement is in part driven by a base effect.

Only the construction industry posted positive performance in March, with business confidence up by 1.0% y/y. This breaks a 23-month negative trend. A base effect should help the component's confidence on positive ground in April.

Confidence in manufacturing and non-financial services fell more rapidly in March than it did in February, showing a worrying performance. Still, in both cases the decline wasn't as grave as in January, suggesting this isn't a fundamental deterioration and might only represent a bit of volatility.

Overall, business confidence remained weak throughout Q1. A rapid recovery in Q2 seems unlikely to us, as uncertainty will remain high and confidence might be dampened a bit further by the worries regarding an ongoing conflict in the Middle East that might soon translate into inflationary pressure domestically. Indeed, we warn fuel prices may not swiftly follow the international price of oil, given the Treasury is likely to subsidize them; however, the fear of higher fuel prices down the road might be enough to hurt confidence and mid-term expectations from an already low base, in our view.