• The amount was at the borrowing ceiling, borrowing costs rose by 2bps when compared to June
• The finance ministry topped up the Sep 2 bond auction by CZK 0.15bn
• It also sold CZK 8.4bn of bonds from its portfolio
• We estimate that gross financing needs were covered at 71.6% as of Sep 3

The finance ministry borrowed CZK 5bn through a 52-week T-bill, according to auction data reported by the CNB. As typical, the borrowed amount was at the borrowing ceiling, though demand was higher than usual, with a cover ratio of 2.94. Borrowing costs remained stable, rising by 2bps when compared to June, when such a T-bill was last sold. There is one more T-bill auction in September, also with a borrowing ceiling of CZK 5bn.

Moreover, the finance ministry topped up the government bond auction on Sep 2 by CZK 0.15bn. As a result, the total borrowed amount reached CZK 8.4bn, well above the CZK 2bn borrowing ceiling. The finance ministry also sold CZK 8.4bn of bonds from its portfolio, which is a move when it wants to increase bond supply and lower borrowing costs in future auctions. At this point, gross bond issuance has already reached 49% of the borrowing ceiling in September, and it has exceeded the Q3 borrowing ceiling by 25%, with three more bond auctions scheduled in September.

Based on the information above, we estimate that the gross issuance of debt instruments that mature after the end of 2026 reached CZK 524.7bn as of Sep 3. The amount breaks down as follows:

• CZK 232bn in CZK-denominated government bonds;
• CZK 177.9bn in net bond purchases to the issuer's portfolio;
• CZK 40bn in CZK-denominated T-bills;
• CZK 74.9bn in retail bonds.

Net inflows from operations with financial assets reached CZK 136.8bn in H1, but the funding and debt management strategy projects a net inflow of CZK 3.6bn in 2026, which is why we are using that number for our calculations. Gross financing needs are projected to reach CZK 738.2bn in 2026, so they were covered at 71.6% as of Sep 3. The finance ministry is planning more retail bond issues, with the next one to be formally issued in early October, and the next - in early January, so it will not figure in the coverage of financing needs in 2026.

• Markets expected real wage growth to reach 5% y/y
• The statistical office revised downwards wage data for Q1, leading to noticeably lower year-on-year growth rates
• Yet, Q2 is the first quarter when the new monthly employment report has been in effect, which has improved data quality
• The public sector was behind the faster increase in nominal wages in Q2, in line with the 2026 budget that was passed in late March
• Still, wages in the service sector picked up growth to 6.8% y/y, the strongest in the past 4 quarters
• We don't believe the wage print alone justifies a rate hike
• However, a combination with inflation surprising on the upside will tilt the odds in that direction

Real wage growth eased to 4.3% y/y in Q2 from 4.4% y/y in Q1 (revised from 6.4% y/y), according to figures from the statistical office. The print was noticeably below the consensus, as markets projected real wage growth at 5.0% y/y. On the other hand, nominal wages rose by 6.4% y/y in Q2, faster by 0.3pps q/q, which was markedly below the CNB's projection, at 7.3% y/y. Furthermore, wages in market sectors (EmergingMarketWatch estimate) eased their growth from 6.4% y/y in Q1 to 6.1% y/y in Q2. This is also noticeably lower than the CNB's projection, which put wage growth in market sectors at 7.4% y/y. In seasonally adjusted terms, nominal wages rose by 1.6% q/q (sa) in Q2, a similar rate to Q1, when they rose by 1.5% q/q.

Data Download

Importantly, the statistical office continued to apply heavy revisions to past data, this time only to Q1. It led to a sharp revision in growth rates, from 8.2% y/y to 6.1% y/y for nominal wages, and from 6.4% y/y to 4.4% y/y for real wages. The main reason is the new monthly employment report, which companies are mandated to submit as of April. It has led to a much better quality of labour data, and it allows estimating wage developments in companies that are not covered by wage surveys. Thus, it appears that wage surveys so far have been biased towards entities that offer a better remuneration, which is also why wage data for 2025 was revised sharply downwards. Unfortunately, this has been distorting year-on-year changes, leading to substantial discrepancies in forecasts as well. As we noted during the Q1 release, it was the main reason why wage growth exceeded the CNB's projections considerably. As far as the Q2 print is concerned, however, it is the first quarter when the new employment report has been available, which should mean data quality is now much better, and any future revisions will be smaller. Thus, we are giving a lot more weight to this wage print.

With that in mind, the public sector was behind the acceleration in nominal wage growth, reporting a wage increase of 7.1% y/y in Q2, up from 4.8% y/y in Q1. This is in line with the adoption of the 2026 budget in late March, which the current government rewrote, and which envisages an average wage increase of about 7%. It also matches our estimate about wage levels in market sectors, as the public sector accounted for all the growth acceleration reported in Q2. This is also supported by the breakdown by economy sectors, as the contribution of public administration was the strongest, followed by administrative and support services, and education. It was also the reason for a 6.8% y/y increase in service sector wages in Q2, faster by 0.8pps q/q. The main downward push came from manufacturing wages, whose growth eased from 6.4% y/y in Q1 to 5.0% y/y in Q2.

Monetary policy impact

The impact of the latest wage print is not as straightforward as it may appear. While wage growth was noticeably slower than what the CNB projected, it will be likely attributed to data revisions, at least in part. Arguably, CNB staff used the updated series for 2025 when they prepared their latest forecast, but we expect board members to assume at least some distortion due to data refinement. Furthermore, service wage growth remained robust, and accelerated to its strongest level in the past 4 quarters. A big part of it is due to the public sector, but this will not assuage inflation concerns, given that fiscal policy will remain loose in 2027 as well. The government plans a stronger wage hike in the public sector in 2027 than in 2026, though we don't have an average wage growth estimate yet.

On its own, we doubt that the Q2 wage print will be enough to justify a rate hike at the coming MPC meeting on Sep 17. However, if inflation data surprises on the upside, especially core inflation, then we will likely shift our expectation from hold to a 25bp rate hike. The labour market is clearly still tight, particularly in the service sector, and fiscal policy will maintain that pressure in 2027. Added to an anticipated acceleration in food and energy price growth later in 2026, the odds are weighing in favour of further monetary tightening.

Babis' allies "scared" about [budget] deficit (Hospodarske Noviny)

Lower unemployment support? No callousness, the government is finally starting to do spending cuts (Lidove Noviny)

Does the Czech Republic change into a debt democracy? State borrows a record amount of money from citizens (E15)

Does Germany have its Vrbetice? It announced retaliation against Russia, has the Czech Republic's solidarity, but there is no hard evidence (Lidove Noviny)

Berlin to increase aid for Kyiv (Pravo)

Trump refuses to negotiate. How the conflict in the Hormuz Strait wreaks havoc on stocks and government bonds (E15)

Russian strikes: They are close to us [according to foreign minister Macinka] (Mlada Fronta Dnes)

Czech Republic prepares more restrictions on refugees. Following the Danish example (Pravo)

"Super benefit": hundreds of thousands saw a deterioration (Mlada Fronta Dnes)

Temu rolls over Czech market. It takes over Alza in online advertising (Hospodarske Noviny)

• Next MPC meeting: Sep 17, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: Hold

Rationale: The CNB board has softened its hawkish stance a bit after the MPC meeting in August, though it will likely remain vigilant. The attention is firmly on domestic developments, with core inflation, labour market developments, and lending to households being in the focus of board members currently. Yet, the latest staff forecast implies stable interest rates for an extended period of time, and we got the impression that the board is fine with such a scenario, at least for now. The minutes suggested that board members are concerned about inflation risks, but they don't see an immediate increase in inflation risks.

However, recent events have favoured a more cautious stance, though data has not been decisive thus far. The increase in hostilities between the US and Iran has led to a renewed growth in oil prices, and respectively domestic fuel prices. Meanwhile, this year's agricultural harvest was poor, reflecting a series of heat waves and a resulting drought. Moreover, fertilizer prices have increased due to the US-Iran war, so lower output and higher production costs for future harvests will drive food prices upwards. Disrupted LNG deliveries from the Persian Gulf have led to a sharp increase in European natural gas prices. Furthermore, European gas storages are at their lowest level since 2022, which will keep natural gas prices high. As a result, the impact on domestic energy prices may turn out to be stronger than expected.

Yet, communication from the CNB board has suggested that interest rates may remain stable for one more MPC meeting. Furthermore, the Q2 wage print was better than anticipated, with a downward revision of Q1 numbers. Finally, CPI inflation ended up precisely as projected, at 1.9% y/y in August. Markets have been shifting towards more monetary tightening, though we consider predictions of three 25bp rate hikes as a stretch, and apparently so does the CNB board. This still leaves the door open for a rate hike in November, as inflation risks are perceived to be on the upside.

Data Download

Data Download

Further Reading:

CNB board statement from latest MPC meeting, Aug 6, 2026

Post-meeting press conference, Aug 6, 2026 (in Czech)

Q&A after the latest MPC meeting, Aug 6, 2026

Minutes from the latest MPC meeting, Aug 6, 2026

Monetary Policy Report, August 2026

Macroeconomic forecast, August 2026

Meeting with analysts, Aug 7, 2026

CNB board profile

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

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

• Foreign minister Macinka called the attacks "alarming", and intends to summon the Russian ambassador over them
• This is a strong response from a government that ended military assistance to Ukraine and reduced support to Ukrainian refugees
• While we don't expect military aid to return to the levels under the previous government, we believe this government will back further sanctions against Russia

PM Andrej Babis (ANO) said that the attacks on critical infrastructure in Germany were a major issue, and they couldn't be discarded easily, according to an X post. He added that the latest attacks in Leipzig, as well as the recent incident in Augsburg, all attributed to Russia according to German security services, showed how important the situation was. Babis expressed readiness to co-operate with Germany and all EU and NATO partners on measures to improve European security. Earlier on Wednesday (Sep 2), foreign minister Petr Macinka (Motorists) called the attacks against Germany "alarming". He furthered that it was indeed not simply a media speculation that the attacks were connected to geopolitical events. Macinka also intends to summon the Russian ambassador to the Czech Republic in relation to the attacks against German facilities.

This is a strong response for this government, which from its very start indicated that it doesn't want to confront Russia directly. This government stopped any direct military assistance to Ukraine, though Czech arms companies have continued to sell military equipment to Ukraine. Furthermore, the tone of the government has become more hostile towards Ukrainian refugees residing in the Czech Republic, and the government has taken steps to reduce the level of financial support. Arguably, the latter doesn't matter that much at this point, as most Ukrainians have found some form of employment. The breakeven point between government support and the taxes and contributions paid by Ukrainians was reached in Q2 2025, and they have been net contributors to the Czech budget since.

The only government party that hasn't reacted is the SPD, but expecting any reaction from them would be a stretch, as the SPD has always been staunchly pro-Russia. Still, the odds are that as Russian tactics become more aggressive towards European states, PM Babis will not be willing to do Russia any favours. We doubt that this government will restore the level of support it had for Ukraine under the previous administration. At the same time, we expect that the Czech Republic will support a tightening of sanctions against Russia, and will not block any additional assistance to Ukraine.

Question:

Is this data publicly available? If so, where can we find it?

The question was asked in relation to the following story: Home prices pick up growth to 8.3% y/y in Q2 2026 - CBA

Answer:

The entire set of data can be found here:

https://www.cbamonitor.cz/kategorie/ceny-nemovitosti

In particular, the series on ask prices is here:

https://www.cbamonitor.cz/statistika/vyvoj-nabidkovych-cen-nemovitosti

Meanwhile, the data on property sale prices can be found here:

https://www.cbamonitor.cz/statistika/ceny-rodinnych-domu-pocet-transakci

In both cases, there is a downloadable file below the chart's footnotes.

• The amount is more than four times higher than the CZK 2bn borrowing ceiling
• Borrowing costs fell slightly when compared to August

The finance ministry borrowed CZK 8.3bn through a floating-rate note, according to auction data reported by the CNB. The amount is slightly more than four times over the borrowing ceiling, at CZK 2bn. The most likely reason is borrowing costs, as the average discount margin was 29.85bps, down from 30.00bps seen in August.

This already puts gross bond issuance at 49% of the monthly ceiling, with three more government bond auctions to go in September. Furthermore, the ratio is before top-ups, which will be resolved through non-competitive bids on Thursday (Sep 3).

• Corporate loan growth flattens out, showing fragility
• Households maintain consistently strong demand for housing loans
• Interest rates on retail and corporate loans follow monetary easing

The stock of outstanding bank loans to the private sector rose by 11.9% y/y at end-July, according to the monetary statistics of the National Bank of Hungary (NBH). Loan growth remained stable from the previous month. It has generally flattened out in the past few months after the earlier steep upward trend. The corporate loan portfolio helped to contain the upward momentum, in our opinion showing higher fragility to the uncertain economic environment and the sluggish economy. The new Tisza government also re-worked the terms of some subsidised corporate loan programmes in order to curb abuses, we note. This could limit corporate borrowing demand in the future, although part of the current strength in borrowing seemed to derive from non-productive uses, in our view.

Data Download

Data Download

Nominal corporate loan growth eased to 5.3% y/y at end-July. The real growth of new corporate loans also moderated to 9.0% y/y, which in our opinion showed a definite reversal of the upward trend. Non-financial companies borrowed net HUF 29.1bn of new loans in July, which we consider a relatively low amount in view of the average track record from the previous months. Around two-thirds of the new loans in the month were forex-denominated. Interest rates on forint corporate loans declined mildly in July, while rates on euro loans exhibited some downward tendency, especially in the large-size loan segment.

Conversely, household lending maintained a consistent strengthening trajectory in July. The stock of retail loans rose by 20.0% y/y at the end of the month, led by a sharp 30.1% y/y increase in housing loans on the back of the subsidised housing loan programme. Consumer loans also rose at a robust, but slower pace of 10.0% y/y at the end of the month. The real growth of new household loans also picked up to 18.8% y/y. The volume of new loans amounted to net HUF 294.0bn during the month. It remained rather stable compared to the previous months, in our opinion suggesting sustained demand for the subsidised housing loan programme. Interest rates in almost all household loan segments, including housing and consumer loans, trended down in July, in line with the monetary easing.

Data Download

President Andras Baka and his staff have started casting process to select new Chief Prosecutor (Magyar Nemzet)

PM Peter Magyar is deeply silent about what EPP leader Manfred Weber asked for in return for help (Magyar Nemzet)

Food prices may not be what we expect due to drought (Magyar Nemzet)

New Hungarian oil pipeline to Serbia will be connected to Druzhba pipeline, 5.5mn tons of oil will be redirected to Serbia (Vilaggazdasag)

Chinese BYD could manufacture new car in Hungary (Vilaggazdasag)

Hungarian multinational UBM has made huge deal, buying one of the largest Greek agricultural companies (Vilaggazdasag)

Hungarian state acquires large stake in oil company MOL, its voting rights skyrocket to 15.2% (Vilaggazdasag)

State energy company MVM is introducing dynamic tariff - those who turn on their appliances at the right time can save a lot (Vilaggazdasag)

"Diplomatic Grand Prix" - PM Peter Magyar meets with President of European Council Antonio Costa in Budapest (Heti Vilaggazdasag)

Hungary blocks Ukraine's accession negotiations (Heti Vilaggazdasag)

This was the hottest month ever recorded in Hungary (Heti Vilaggazdasag)

Proportion of contracts suspected of corruption reached new heights before the elections (Heti Vilaggazdasag)

Chair of parliamentary committee investigating pardon case would question ex-President Katalin Novak, ex-bishop Zoltan Balog and ex-justice minister Judit Varga in open session (Heti Vilaggazdasag)

• Existing preferential electricity price to remain in force
• Consumers to be able to choose between fixed market price and dynamic price
• Penetration of new tariff option to be limited at first, we note

The state energy company MVM rolled out a new electricity price band for residential and non-residential consumers under the universal service, the company announced. The new tariff option is available as of Sep 1. Prices for the electricity universal service are regulated and have been fixed in two bands - a preferential price of HUF 36/kWh for below-average consumption and a so-called market price of HUF 70.1/kWh for above-average consumption. The preferential price has been unchanged since 2013, while the market price band was introduced in Aug 2022 in response to the energy crisis, we note.

The new tariff will not eliminate the preferential price band, which will remain applicable for below-average consumption. The new tariff will offer a dynamic pricing option tied to stock exchange prices instead of the fixed market price in the band for above-average consumption. It will be entirely voluntary and residential and non-residential clients could choose it instead of the fixed market price. The dynamic pricing option could become more optimal with the spread of renewables, which results in larger intra-day pricing fluctuations, MVM said.

The application of the dynamic pricing tariff requires the installation of a smart power consumption meter, the news portal Portfolio commented. This could limit the penetration of the scheme among residential customers at first, since smart meters are not universally installed, we note. The government, however, has announced plans to launch a programme for the installation of smart meters to be financed by the released recovery funds, which might support interest in the dynamic price tariff in the medium- to long-term, we believe.

The market price band applies to around 20-25% of households, according to ad-hoc government information. This will be the upper limit of the penetration of the new dynamic price band, we note.

• Hungary to insist on accumulated fine being credited to next EU fund package, PM Magyar says
• Government calls for keeping EU fund allocation to Hungary unchanged in next EU budget cycle

Leader of the European People's Party (EPP) Manfred Weber has offered Hungary help in resolving the EU Court fines, PM Peter Magyar announced in a social media post after meeting with Weber yesterday. The EU Court imposed a lump-sum fine of EUR 200mn and a daily fine of EUR 1mn on Hungary during the mandate of the previous Fidesz government for not respecting its ruling on asylum policy. The new Tisza government has also refused to apply the EU Court ruling as Magyar argued that the EU migration policies have changed in the meantime, making the ruling obsolete. Instead, the government has tried to seek diplomatic channels to avoid the payment of the fine. The daily fine started to accrue in Jun 2024, so the accumulated amount so far should be around EUR 800mn, according to our calculations. Given Hungary's refusal to pay, the EC has the right to deduct the due amounts from Hungary's EU fund allocation, we note.

Hungary will continue to protect the EU's external borders and it will insist during the upcoming negotiations on the new EU budget that the fines are waived and added to the next EU fund quota for Hungary, Magyar stated. He revealed that he was due to meet EU Council President Antonio Costa later today and the new EU budget will be on the agenda. Hungary's position will be that the EU fund allocation to the country should not be reduced compared to the current cycle and that the funds for cohesion and agriculture should be maintained, Magyar stressed.

Crucial pre-election showdown is beginning in Sejm (Gazeta Wyborcza)

PiS is considering 'nuclear option' [if coalition doesn't vote in a deputy speaker from PiS, PiS will retaliate after 2027 elections if it forms majority and not name any opposition members as speakers] (Rzeczpospolita)

Govt is no longer moving so quickly on bill to limit doctor salaries (Gazeta Wyborcza)

Domanski on Poland's G20 participation (Gazeta Wyborcza)

Europe needs Weimar triangle [co-op among France, Germany, and Poland] (Rzeczpospolita)

Russia tries to destabilise Germany [which will also be a problem for PL, article says PL should stop with anti-German rhetoric] (Gazeta Wyborcza)

Putin's war on 'fascist Europe' (Rzeczpospolita)

Police officials say RU provocations are a major threat (Gazeta Wyborcza)

Was the massive fire in Gdynia a mistake? [arson attacks hit key firms, but also some non-key ones; Russians blamed] (Rzeczpospolita)

Specialist: Was the migrant storm on Ceuta designed to punish Spain? (Gazeta Wyborcza)

Expensive fuel drives electric vehicle sales (Rzeczpospolita)

Domanski: Poland will join the World Bank Initiative (Rzeczpospolita)

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

Rationale: NBP and Monetary Policy Council head Adam Glapinski set the stage for summer rate-cut speculation when he told his last press conference in early July that he might submit a motion to cut rates by 25bps at the next sitting on Sep 8-9, at least if nothing changed, but those comments were followed by a summer of change, including notably escalating tension in the Middle East and higher oil prices. Those oil prices helped push CPI inflation to a higher-than-expected 3.4% y/y in August despite the fact the government re-launched the fuel tax cuts for the final two weeks of the month. On Sep 1, in relation to his visit to G20 in the US, Glapinski dropped talk of cuts and said rather that the MPC is not pre-committed to any one path.

Glapinski can be unpredictable and one can't rule out that he might still be dovish since forecasts of inflation for the next couple of years in Poland are largely benign. But he is unlikely to see a positive enough outlook to submit a motion, and it is unclear if the rest of the MPC would follow him. We continue to believe the Law and Justice (PiS)-backed members of the MPC would likely vote with Glapinski in nearly all cases, but cutting rates now might be a bridge too far.

More likely is that Glapinski will highlight the uncertainty and the potential threats to inflation. Besides fuel, which is the exogenous factor par excellence, there might also be worry about food prices. Fertiliser imports to Poland are well down on the prior year and fertiliser prices in Europe are well up. Drought due to the heatwaves that hammered Europe will hurt local supply at least. This might raise some questions about food prices, even if the latest food inflation data has been good.

Fiscal policy is likely to be another possible inflationary factor focused on by Glapinski. The NBP head, who hails from PiS-tied circles, loves to hammer the government when he can, and the release of a 2027 state budget draft that keeps the general government deficit above 7% of GDP is likely too attractive to not stress. But in fact, many MPC members will see loose fiscal policy as constraining monetary policy, especially during a time when headline CPI inflation of 3.4% is only slightly below the key rate of 3.75%.

Overall, if the US-Iran war had remained cold over the summer and fuel prices had not jumped, we imagine the MPC might very well have cut rates in September. But the true course of events was different and, though one should never rule out a surprise with this MPC, it seems very unlikely a rate cut will come. More interesting than the decision itself is likely to be Glapinski's presser on Sep 10, particularly how he frames the risks to inflation from factors beyond fuel.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2026)

Most recent MPC voting results

Archived video of all MPC press conferences

• Adjusted public debt to close 2027 at 54.8% of GDP, or just below level triggering austerity
• Govt to be elected in autumn 2027 might face need to immediately correct public finances
• Broad public debt to rise to nearly 56% of GDP in 2027, general govt debt to rise to nearly 70%

The Civic Coalition (KO)-led coalition's draft 2027 budget carries a high deficit of 7.1% of GDP that marks very little progress from the likely 2026 result and from the worse-than-expected 7.3% in 2025 and highlights the mounting fiscal risks. This is especially so since the budget forecasts that the key domestic public debt measure for the safety thresholds -- domestically calculated public debt that factors in the Finance Ministry's cash and uses an average annual exchange rate for external debt -- is set to widen to 54.8% of GDP at end-2027 from 51.9% at end-2026. The first safety threshold in the Polish Public Finance Act is set at 55% of GDP, and its crossing would mean either a lack of deficit in the year x+2 or the budget balance must ensure a decrease in State Treasury debt to GDP. Many other austerity measures are triggered as well.

The government has taken to presenting two forecasts for public debt of late that highlight the risks further. The FinMin does forecast the key public debt measure at 54.8% of GDP, which is below the 55% level, but that is according to budget execution in 2026 and 2027 that is in line with its expectations and not according to the official deficit levels (PLN 271.7bn in 2026 and PLN 282.6bn in 2027). If the deficits hit the statutory limits, then the key public debt measure is actually forecast at 55.9% of GDP, which is above the relevant threshold and would trigger austerity in 2029.

The rising risks from debt can also be seen in the other debt forecasts. The government expects the broad domestically calculated public debt measure to rise to 55.9% of GDP in 2027 from 55.3% in 2026 in the baseline view (the deficit max view sees debt at 57.1%). This measure is to be up from 48.9% in 2025. General government gross debt is expected to balloon to 69.5% of GDP in 2027 from 67.6% in 2026 in the baseline view. The ESA2010-compliant debt measure is to be well up from 59.7% of GDP in 2025 and to exceed the 60% of GDP threshold.

BUDGET GAP

The general government deficit of 7.1% of GDP in 2027 is to be mostly flat from 2026. Finance Minister Andrzej Domanski said last Fri. that the 2026 deficit would be higher than the 6.8% of GDP target. The government did not release an explicit 2026 forecast, but the documents do include a chart with the 2026 deficit seemingly at 7.1% of GDP, suggesting 2027 will be one of stasis.

The budget deficit is to be PLN 282.6bn, which is to be up nominally from PLN 271.7bn in 2026. The lack of real consolidation is not surprising considering the proximity of the autumn 2027 elections, and the fact those elections help compel President Karol Nawrocki to veto anything he can, creating a scenario where the government wouldn't feel comfortable passing any sort of fiscal consolidation that would only be vetoed later by the president.

The budget is based on GDP growth of 3.0%, which is to be well down from 3.6% in 2026, though still relatively good in a regional perspective. But one thing to note is that the Finance Ministry has become much less optimistic about future growth. The government approved multi-year forecasts in April that showed growth of 3.1% in 2027, 2.9% in 2028, 2.6% in 2029, and 2.2% in 2030, but it has cut these to a respective 3.0%, 2.6%, 2.1%, and 2.0%. The debt fight will thus have to come against a worse economic outlook, which will make it all the harder. Inflation is to be relatively low at 2.8% in 2027 and then 2.5-2.6% in 2028-30. The budget says that the 2027 inflation forecast assumes no change to natural gas tariffs (which might be erroneous considering the latest rise in European natural gas prices).

Poland was placed in the EU's Excessive Deficit Procedure (EDP) in July 2024 and the EU Council stated in January 2025 that Poland had by 2028 to correct the excessive deficit. But the EU Council also recommended adherence to the net expenditure growth path presented by Poland in its medium-term budgetary-structural plan for 2025-28 and then later adopted recommendations regarding the coordinated activation of national escape clauses (NECs) in 2025-26 for member states including Poland that allow for a deviation from the expenditure path recommended up to the amount of the increase in defense spending relative to pre-war levels (prior to the war in Ukraine), subject to a cap of 1.5% of GDP annually (which is Poland's cap).

The FinMin noted that the EU council's approval of Poland's net expenditure path, which is based on the stabilizing expenditure rule, and taking into account the escape clause ensures compliance with European rules. The ministry also noted that the European Commission (EC) is assessing the recommended expenditure path twice a year in 2025-29, but will not assess the level of the general government deficit in 2025-28. The ministry added that the EC assessed in June that Polish budgetary policy was consistent with the net expenditure path set by the EU Council, and thus the EC maintained the suspension of the EDP for Poland. "This means that the EU Council takes no further steps regarding the country in question while the European Commission continues to monitor progress in implementing the council's recommendations," it said.

INCOME

Budget income is to rise by 10.9% to PLN 695.0bn from the PLN 626.6bn current forecast for 2026 (and down from the PLN 647.2bn written into the 2026 state budget law), rising at a pace that is above the expected nominal GDP rise of 5.9% for 2027. The relatively fast tax rise is to come as private consumption remains strong (5.8%) amid relatively fast GDP growth, but also as the Finance Ministry implements measures to enhance tax collection efficiency and raises taxes.

Tax revenue is to grow 10.2% to PLN 622.4bn. VAT income is to remain the main source at PLN 363.7bn, to be up 9.5% in 2027 over the updated forecast for 2026 (which was cut by PLN 9.5bn; fuel tax cut losses for VAT put at PLN 3.4bn). The FinMin notes that VAT will be lifted by previously implemented measures designed to improve tax collection and curb irregularities in tax settlements, including the National e-Invoicing System (KSeF), as well as new VAT rates for some beverages that are to lift revenue by PLN 1.3bn. But VAT is to be lowered by PLN 4.4bn due to the VAT exemption for purchases supported by the EU's SAFE instrument.

The FinMin said the cost of the fuel tax cuts for excise was some PLN 1.8bn (putting the total cost at PLN 5.2bn). It also noted that the government would seek to raise the excise on alcohol by more than the 5% already legislated in a move to raise income by PLN 1.4bn. To note is the fact President Karol Nawrocki would seem likely to veto this since he has already done so.

CIT revenue is to rise a sharp 17.7% to PLN 94.6bn as the government raises the CIT rate for large companies in order to pay for de facto tax cuts for middle-class Poles. The CIT rate will rise to 22% from the standard 19% for those with revenues exceeding EUR 50mn. The CIT rate will also rise for energy sector companies to support energy-intensive enterprises. The combined impact of these increases will be to up revenue by PLN 9.4bn. The fate of this tax rise is unclear since President Karol Nawrocki could very well veto it in order to put the government in a tough spot.

Tax revenue growth will also be lifted by the full impact of the global minimum tax (GloBE) system, which applies to multinational and domestic groups with annual revenues of at least EUR 750mn and sets a minimum effective tax rate of 15%. The system is to raise revenues by PLN 2.4bn in 2027. An additional revenue-generating measure will be the introduction of a compensatory tax on certain services, with this being the so-called digital tax. The revenue rise is to be PLN 1.7bn, though of course the fate of this tax is unclear.

The tax increases are to pay for Personal Income Tax (PIT) cuts. The government has drafted a plan to raise the income tax threshold for the existing 12% rate from PLN 120,000 to PLN 130,000, introduce a new 24% rate for income between PLN 130,000 and PLN 150,000, and then increase the threshold for the existing 32% rate to PLN 150,000. Some 3.5mn taxpayers are to benefit. To help pay for this, besides the CIT increases, the government will reduce the revenue limit qualifying taxpayers for the so-called lump-sum tax on recorded revenue, cutting it to EUR 250,000 from EUR 2mn in order to restrict the use of this simplified taxation method by high-revenue taxpayers. The government will likely raise some other taxes. It said that the PIT cuts would cost PLN 9.1bn, but the tax cuts mentioned here would raise PLN 3.3bn in revenue, for a net revenue cost of some PLN 5.8bn in 2027.

The government also foresees a 5.9% rise in excise revenue growth to PLN 100.1bn. The growth will stem from already legislated adjustments to rates under the so-called excise duty roadmap that covers alcohol, tobacco, novel products, e-cigarette liquids, and nicotine pouches and other nicotine products.

Non-tax revenues are to grow by 18.8% to PLN 69.3bn. Major growth is to come via higher dividends and profit remittances from state-held companies. These are planned at PLN 13.9bn, rising sharply from PLN 9.1bn in 2026. No budget revenue is projected from the NBP, though the FinMin did note that much uncertainty exists here due to public comments from the NBP head, referring to the potential plan to sell gold to raise profits that could be used for defense spending, but whose scheme depends on a deal between the government and the president that we think is unlikely to be signed.

SPENDING

Budget expenditure is to rise 6.4% to PLN 977.6bn from the PLN 918.9bn included in the 2026 state budget law. As usual, the FinMin has not updated its spending forecasts for the year, but usually assumes higher spending than occurs in the budget and so spending could very well come in below the PLN 918.9bn and that would mean a bigger 2027 spending increase.

One complicating factor is that there is a new framework for spending that introduces five basic expenditure categories: current transfers, benefits for individuals, current expenditures, capital expenditures, and capital transfers. One change from 2026 is the separation of capital transfers from the previous capital expenditure category. The FinMin said this was done in order to differentiate capital flows (including grants) and investment outlays.

Spending is highlighted by defense and health, both of which will see big increases in 2027. Total defense expenditure in 2027 is to amount to PLN 198.1bn, or some 4.5% of projected GDP. The total breaks down into defence spending that is actually part of the state budget (PLN 131.7bn, or 3.0% of GDP) and spending by the BGK-run off-budget Armed Forces Support Fund (FWSZ) (PLN 66.4bn). The FinMin also said that "a portion" of defense expenditure in 2027 is financed under the SAFE program.

In line with previous legislation, the government must ensure health spending of at least 7% of GDP in 2027 (to be up from minimum of 6.8% of GDP in 2026), meaning such expenditure will rise to PLN 274.1bn from PLN 247.6bn in 2026, though not all of this is on the budget. The subsidy for the National Health Fund (NFZ) will rise PLN 15.5bn to PLN 41.5bn in 2027. Many reforms are related to health, which remains a hot topic issue in Poland that mostly focuses on problems in the provision of healthcare.

Social spending will also remain high. Remaining in place will be the "Family 800+" (PLN 60.8bn), "Active Parent" (PLN 7.0bn), and the "Good Start" education scheme (PLN 1.4bn), and the pension bonuses (the so-called 13th and 14th ones) will cost PLN 32.1bn in addition to the PLN 19bn cost of pension indexation.

Energy spending will rise, with PLN 8bn spent on the nuclear power plant. Road and rail spending will hit PLN 62.4bn in 2027, with PLN 26.4bn coming from the state budget. Public-sector and teacher wages will be hiked by 3.0% in 2027 (which is slightly above the 2.8% inflation forecast), which is to cost PLN 7.8bn.

Debt servicing is to rise to PLN 107.9bn in 2027, rising from the PLN 90.0bn set aside in the 2026 state budget. Poland's EU membership contributions are to total PLN 47.6bn, up from PLN 41.6bn in 2026.

FINANCING

In terms of financing, the government introduced major revisions to its 2026 forecasts. Instead of the net borrowing requirement of PLN 422.9bn included in the 2026 state budget, the Finance Ministry expects the actual net borrowing requirement to be PLN 320.6bn (giving a PLN 102.3bn decrease). In line, the gross financing requirement was cut to PLN 582.5bn from the PLN 688.5bn written into the budget (giving a PLN 106.0bn cut).

For 2027, the FinMin set the net borrowing requirement at PLN 317.1bn, which is to be down slightly from the revised 2026 target. The gross borrowing requirement is to be PLN 565.3bn, which is to be well down from the PLN 582.5bn expected for 2026.

The FinMin expects net Treasury security issuance of PLN 198.5bn in 2027, which is to be well down from the PLN 245.5bn expected for 2026. The ministry is to issue a net PLN 164.1bn in fixed-rate bonds, PLN 29.4bn in floating-rate ones, and PLN 4.9bn in inflation-indexed ones. Net savings bonds issuance is to be PLN 97.6bn. Gross bond issuance totals are in the table below.

Net foreign financing is to be PLN 31.9bn in 2027, or just down from PLN 32.3bn this year. Gross foreign bond issuance is to be worth PLN 49.0bn in 2027, which is down from the PLN 52.8bn to be achieved in 2026.

OVERALL

The 2027 budget was always expected to be an 'election' one and indeed it is. There is no major boost to spending, but that is not possible in these fiscally strained times. Rather, the budget fails to rationalize spending and doesn't hike income as much as might be possible. On one hand, this is due to government reluctance, and it must take blame for that. But in political terms, it is not hard to comprehend. The predecessor to the senior ruling Civic Coalition (KO) took one for the team and raised the retirement age not long before the 2015 elections and then was hammered for that, leading to eight years of PiS-led rule. A KO-led coalition won the 2023 election, pledging not to take away what was given by PiS as a matter of political survival. It was thus always unlikely big spending cuts or tax increases were coming.

But on the other hand, President Karol Nawrocki comprises a major hurdle for the government, especially as the president is taking a "the worse [for the government and maybe Poland], the better [for his political allies]" stance. In his first year in office, he has wielded the veto more than any president in history, and one should expect this total to rise further in the roughly year before the next election. But more problematic than the veto itself is the fact the president is vetoing most tax hikes, even if there isn't much rationale for doing so (such as the attempted hike of the excise on alcohol). The upshot is that even if the KO-led government wanted to sharply raise taxes or cut some spending (say, means test the Family 800+), the president would likely use the veto and there is little point using political capital for something that won't see the light of day.

But that means public debt will continue to rise and a key safety threshold risks being crossed in 2027 and, if not then, in 2028 definitely. The government will approve in September a new Public Debt Management Strategy that will contain longer term forecasts for this debt measure and it is very unlikely it won't cross the threshold in 2028, which would mean austerity in the 2030 budget. If the government doesn't just change the Public Finance Act (which could be done; if done by a KO-led government, the president might get in the way; the president would sign a similar PiS-led move), then the safety threshold will in fact work as is intended and austerity would help improve the condition of public finances, staving off even more trouble later, even if it means pain for Poles and potential political pain for whichever majority has to implement the cuts.

The government didn't reference the NBP's gold-selling plan directly in the budget, but it may yet play a role in the public finance story. We continue to believe that if a PiS-led majority does take over after the autumn 2027 election, Glapinski will almost surely sell some gold and perhaps that will lead to a fiscal way out, at least temporarily. A KO-led repeat government of some sort might have more trouble in this regard, though maybe if faced with austerity the incentive would be there to find some way to strike a deal with Nawrocki.

In the end, the 2027 budget isn't ruinous by itself, but the deficit remains very high in conditions of relative normalcy and there will continue to be the risk of fiscal strain going forward that either brings about consolidation or compels politicians to find a novel way to kick the problem down the road.

• Business Insider Poland notes that Nawrocki seems likely to veto centrepiece tax bill

The government's key tax proposals for 2027 are to raise the tax thresholds and introduce a new tax rate at 24% in order to de facto lower middle-class taxes, but to pay for this via higher taxes on larger companies, with that latter fact seemingly the trigger for a likely veto from President Karol Nawrocki, Business Insider Poland reported Wed. This bill, which is numbered UD458, would raise the tax threshold to PLN 130,000 from PLN 120,000, meaning tax below PLN 130,000 will be charged at the existing lower 12% rate. Income between PLN 130,000 and PLN 150,000 is to be charged a new 24% tax rate, and then income over PLN 150,000 is to be taxed at the existing 32% rate.

To pay for this, the Corporate Income Tax rate is to be raised to 22% from the standard 19% for companies with revenues topping EUR 50mn (some PLN 200mn), the solidarity levy is to be raised to 5% from 4% (this is charged on those on the PIT scale whose income exceeds PLN 1mn per year), reduce the limit to EUR 250,000 from EUR 2mn for entrepreneurs to pay tax on a lump sum basis (many richer individuals take advantage of this), and introduce a higher 17% flat-rate tax payable on the excess of revenue earned over EUR 300,000 during the year.

President Nawrocki has not taken an outright stance, but his aides have rather had negative views mostly due to the tax increases, making a veto seem likely. That said, the government has said some 3.5mn people would benefit from lower taxes and so this could be a close decision.

Overall, this will be one of the key questions regarding the 2027 state budget, but it appears to have a political edge. PM Donald Tusk and his coalition clearly want to deliver a tax cut to use in the campaign for the autumn 2027 elections. As such, President Nawrocki might have the incentive to veto it. But Tusk et al also clearly hope that dashing the hopes of 3.5mn key voters in regards to lower taxes will be too painful for the president since it might have real electoral costs for Nawrocki and his backers in the opposition Law and Justice (PiS). This is a tough one to call at this stage. It wouldn't be surprising to see Nawrocki wield the veto here since he has championed himself as being against tax increases, though one could see him sign since the tax hikes are to occur on sectors that are seen as "rich."

• Davutoglu faces investigation after accusing Erdogan of favouring relatives and contractors
• Davutoglu's dissolved party limits investigation's immediate opposition and electoral impact, in our view

The Ankara Chief Public Prosecutor's Office launched an investigation into former PM Ahmet Davutoglu on charges of insulting President Erdogan over remarks he made, the local media reported. The prosecutor's office said social media posts containing Davutoglu's comments were examined and that an investigation was subsequently opened, it said. Davutoglu accused President Recep Tayyip Erdogan of enriching his relatives and associates, appointing his son-in-law as minister and favouring five contractors, while contrasting this with his own record in government, according to the media reports.

The investigation comes after Davutoglu's Gelecek Party was dissolved, which considerably changes the political significance of the case, we think. Davutoglu no longer commands a separate party organisation that could turn the investigation into a broader opposition campaign, limiting its immediate electoral implications, we assess.

• Intermediate materials drive export gains while exports of finished consumer products drop
• Imports increase by 10.5% y/y, with production inputs comprising 70.7% of total
• Rolling 12-month deficit deteriorates by 11.6% y/y, reaching USD 97.8bn

The foreign trade deficit rose by 22.3% y/y to USD 5.2bn, despite exports posting a relatively strong 8.1% y/y increase to USD 23.5bn, the preliminary statistics by the trade ministry showed. Imports grew faster, rising by 10.5% y/y to USD 28.7bn. Accordingly, the export-to-import coverage ratio fell by 1.7pps y/y to 81.8%.

Export growth was mainly on the back of intermediate goods, which jumped by 19.7% y/y and accounted for 56.1% of total exports. Consumer goods and investment goods exports fell by 2.3% y/y each. The headline export increase looks relatively strong, but it does not yet signal a broad improvement in external demand for Turkish final goods, we assess. Manufacturing continued to dominate exports, accounting for 93.5% of the total. Germany remained the largest individual export market, narrowly ahead of the US.

Against this background, imports showed an even clearer concentration in production inputs, the data revealed. Intermediate goods imports increased by 14.5% y/y, taking their share of total imports to 70.7%. Consumer goods imports also rose by 4.1% y/y, whereas investment goods imports slipped by just 0.7% y/y. Compared with July, when capital goods imports had fallen by 11.5% y/y and consumer goods imports by 1.3% y/y, the August breakdown therefore provides less evidence of a broad-based compression in domestic demand, we assess. That said, we would still avoid reading too much into a single month, but the combination of stronger consumer goods imports and an almost flat capital goods reading suggests that restrictive financial conditions are no longer producing the same clear import compression seen in July, we underline. China remained the largest import source at USD 4.7bn, followed by Germany and the US.

Exports rose by 4.0% y/y to USD 185.0bn, while imports increased by a faster 5.3% y/y to USD 250.8bn in Jan-Aug. The resulting trade deficit widened by 9.3% y/y to USD 65.8bn, while the cumulative coverage ratio fell by 0.9pps to 73.8%. The deterioration is also visible beyond the monthly volatility, we underline. On a rolling 12-month basis, exports reached USD 280.3bn, up 4.2% y/y, but imports climbed by 6.0% to USD 378.0bn. The 12-month deficit consequently widened by 11.6% y/y to USD 97.8bn.

• Producer prices increase by 2.6% m/m in August, nearly double July's 1.5% m/m gain
• Price pressures broaden across categories beyond energy

D-PPI inflation ticked up to 28.0% y/y in August from 27.8% in July, interrupting the gradual easing seen in recent months, state statistical institute Turkstat data showed. Monthly inflation accelerated sharply to 2.6% m/m in August from 1.5% m/m in July. This took the cumulative increase since December to 20.9%, we underline.

Data Download

The strengthening of the annual print was small, but the underlying breakdown was less benign, we assess. Among the main industrial groups, intermediate goods producer price inflation rose to 27.4% y/y, durable consumer goods inflation to 28.5%, energy to 27.3% and capital goods to 22.1%. Non-durable consumer goods was the only major group to record a meaningful slowdown in D-PPI inflation to 30.3% y/y, although it still had the highest annual inflation rate among the five groups, we flag. This marks a clear change from July, when annual inflation had eased across every major industrial grouping, we remind.

The m/m figures provide the clearer warning signal, we think. Energy prices jumped by 7.0% m/m, but the acceleration was no longer confined to energy. Durable consumer goods rose by 2.8% m/m, while intermediate goods accelerated to 1.8% m/m. Capital goods increased by 1.8% m/m in August, compared with 1.1% m/m in the previous month, and non-durable consumer goods by 1.5% m/m, versus 1.3% m/m. Manufacturing prices as a whole rose by 2.4% m/m in August.

• CPI rises by 1.84% m/m in August, offering limited underlying relief
• Diesel prices surge by 14.1% m/m, refuting ITO and confirming our concerns
• Weak food prices offset sharp transport, housing, education, tobacco, and energy increases
• Goods inflation cools, while services inflation remains elevated, urging continued CBT caution, in our view

Headline CPI eased further to 31.5% y/y in August from 31.7% in July, extending the disinflation trend, state statistical institute Turkstat data revealed. Consumer prices increased by 1.84% m/m, slightly below our 1.90% house forecast and within our 1.60-1.98% model range.

Data Download

Diesel prices rose by 14.1% m/m in Turkstat's August CPI data. This confirms the concern we raised yesterday over ITO's series. There was clearly no decline in diesel prices during August, contrary to the 4.3% m/m fall reported by ITO. Turkstat's figure is also close to the 11.8% m/m increase we calculated independently using EPDK data. The small difference is readily explained by the measurement periods as our calculation uses EPDK's full-month average, whereas Turkstat collects fuel prices through the 24th of each month as stated in page 31 of the relevant document.

The m/m breakdown of the CPI was unusually polarised in August. Food and non-alcoholic beverage prices increased by just 0.2% m/m and contributed only 0.1pps to headline CPI, compared with a 1.6% increase and a 0.4pps contribution in July. Unprocessed food prices fell by 2.0% m/m, driven largely by an 8.2% m/m decline in fresh fruit and vegetable prices, while processed food prices still rose by 2.0% m/m. Transport prices rose by 4.8% m/m and accounted for a 0.8pps contribution, or almost half of the overall monthly increase. Education prices were also particularly strong at 8.6% m/m, adding 0.2pps and energy prices rose by 5.5% m/m. Clothing and footwear provided the largest offset, falling by 3.5% m/m and subtracting 0.2pps from the headline. More broadly, goods prices increased by only 1.0% m/m, whereas services rose by 3.1% m/m.

The goods-services split remains the clearest source of concern on an annual basis. Goods inflation slowed by 0.9pps to 26.2% y/y, helped by core goods inflation of just 15.9% y/y and non-energy, non-food goods inflation of 17.5% y/y. Food inflation also dropped sharply, by 3.7pps to 33.8% y/y, although energy inflation rebounded by 6.4pps to 39.2% y/y. Services inflation, meanwhile, accelerated slightly to 40.3% y/y, leaving it more than 14pps above goods inflation, we note. The breakdown remains sticky, we underline. Transportation services inflation climbed to 52.4% y/y, telecommunication services to 44.7%, while rent inflation, despite continuing to moderate, remained very high at 43.1%. Disinflation is becoming increasingly visible in goods, particularly core goods, while services continue to run at around 40%, in our opinion pointing to persistent domestic price-setting pressures.

Core inflation therefore sends a more nuanced signal than the headline decline. Core B inflation eased by 0.3pps to 30.7% y/y, while Core C inched up by 0.2pps to 30.1% y/y and Core D increased by 0.4pps to 31.3% y/y. Inflation excluding administered and directed prices fell by 0.4pps to 30.0% y/y. The absence of a uniform decline across the core indicators, alongside the renewed acceleration in services inflation, suggests that August's further fall in headline inflation owes more to favourable developments in selected goods and food categories than to a broad-based easing of underlying inflation, we underline.

Overall, the August print is close enough to our forecast to leave our broader assessment largely unchanged. Headline disinflation continues, and the 1.84% m/m outcome should offer the CBT some comfort ahead of its September meeting. Yet the quality of the disinflation still remains uneven, we think. August benefited from exceptionally weak unprocessed food prices, a contribution that may not persist, we flag. We therefore see little in these data alone to justify interpreting the headline decline as a meaningful improvement in the underlying inflation trend. Instead, they reinforce the case for the CBT to remain cautious while waiting for clearer evidence that services inflation and broader domestic price-setting behaviour are cooling, we assess.

New balance in Turkey's foreign policy: What do SCO Summit and Erdogan-Putin meeting reveal? (Hurriyet)

73rd hearing in corruption case against Istanbul metropolitan municipality (Hurriyet)

President Erdogan: Greece must turn back from wrong path it takes (Hurriyet)

Former Ankara metropolitan municipality mayor Melih Gokcek is summoned to give statement (Hurriyet)

Interior minister Mustafa Ciftci: Georgia extradites 11 people wanted by Turkey (Hurriyet)

In August, biggest price increase in Istanbul is in exam fees (Sozcu)

World's top 100 defence companies are announced: Five Turkish giants are on list (Sozcu)

President Erdogan reacts to statements made by DEM Party official (Sozcu)

Transport minister Abdulkadir Uraloglu: Turkey becomes true crossroads connecting continents with 356 international flight destinations in 133 countries (Sabah)

CBT's housing analysis: Rent inflation slows due to increased supply (Sabah)

Turkey-Russia Middle East and Africa Consultations are held in Moscow (Sabah)

• ITO reports diesel prices falling 4.3% m/m in August
• We observe that EPDK data show average diesel prices rising 11.8% m/m
  
• Discrepancy raises questions about collection timing and inflation measurement, in our view

ITO reported a 4.30% m/m decline in diesel prices in August, according to item-level data published in local media. Our calculations using Energy Market Regulatory Authority (EPDK) data point in precisely the opposite direction. The average diesel price rose to TRY 79.8 in August from TRY 71.4 in July, implying an increase of around 11.8% m/m rather than a decline. The discrepancy is therefore not simply one of magnitude: the two measures give opposite signs for the monthly price movement.

We were able to reproduce ITO's figure, detecting a potentially important methodological issue in the item-level data behind the Istanbul Chamber of Commerce's (ITO) August CPI. EPDK daily data show diesel at around TRY 80.9 on Aug 1 and TRY 77.4 on Aug 31, which we attribute to government measures. Comparing those two observations gives a decline of roughly 4.3%. This is effectively identical to the change reported by ITO. That coincidence initially suggested to us that ITO may have measured the change between prices around the beginning and end of the month rather than capturing the average price paid through August. Yet ITO's own published methodology explicitly lists diesel among products for which prices are collected weekly on page 11 of the document.

If the published methodology was followed, weekly observations should have captured at least a substantial part of the sharp increase in diesel prices during August. A 4.3% decline that instead closely matches the first to last day movement therefore warrants an explanation from ITO, we think. There may be a technical explanation involving the precise observation dates, outlets, geographical coverage or the aggregation procedure, so one item alone is not enough to conclude that the headline index is incorrectly calculated, we assess. But the discrepancy is too large to dismiss as rounding or ordinary sampling noise, we flag.

That said, if volatile prices are systematically represented by observations that fail to capture the average price environment consumers face during the month, measured inflation could become sensitive to the timing of price collection rather than simply the underlying price movement, in our assessment. If the same pattern extends to other items, it would raise a more fundamental question over the reliability and interpretation of the ITO inflation signal, we caution.

• Foreign investors pour USD 75bn into TRY assets chasing 37% rates
• Government mulls taxing money market fund returns for institutional players
• Inflows prop up TRY and reserves but can reverse fast
• Poor calibration could weaken TRY demand and trigger capital flight, in our view

Roughly USD 75bn in foreign capital has moved into TRY assets to take advantage of high interest rates, leaving policymakers with an increasingly awkward trade-off between discouraging short-term inflows and preserving the support they provide to the currency, Bloomberg reported. With the policy rate at 37.0%, foreign investors have built sizeable positions through FX derivatives and money market funds, it said. The inflows have helped the TRY and, indirectly, the CBT's reserve position, but their short maturity also leaves the economy exposed to a potentially sharp reversal if domestic or external conditions deteriorate, the portal underlined.

Against that backdrop, the government is reportedly considering taxing returns on money market funds, Bloomberg claimed. Around TRY 3tn, or USD 62bn at current exchange rates, is held in these instruments, according to Bloomberg. The measure under discussion would target domestic and foreign institutional investors whose profits, unlike those of individual investors, are currently untaxed, it added. According to the analysis, TRY assets, which have yielded approximately 11.2% since the beginning of the year, are the fourth best-performing currency after Brazil, Argentina, and Colombia. The finance ministry and the CBT did not immediately respond to Bloomberg's requests for comment, the portal indicated.

We think the discussion matters less for its fiscal impact than for what it reveals about the authorities' growing unease with the structure of capital inflows. A tax on money market fund returns could be intended to discourage the most liquid carry positions, limit the risk of rapid capital outflows and reduce the associated threat of FX volatility in a shock, we note. That said, it could also push part of the carry stock towards longer-duration TRY assets, including government bonds. However, the difficulty is calibration, we assess. These inflows currently support the TRY and reserve accumulation, so measures that materially weaken their risk-adjusted return could accelerate the exit they are designed to contain, we caution.

• Erdogan does not deny potential plans to transfer Russian S-400s
• S-400 problem stays key for any F-35 deal, in our view
• Turkey wants American military upgrades while maintaining ties with Eastern allies

Talks with the US over Turkey's return to the F-35 programme were continuing, President Erdogan said, adding that Turkey expected the process in the US to be completed as soon as possible, the local media reported. Turkey was an original programme partner and had made substantial contributions before it was removed following its purchase of Russia's S-400 air-defence system, he reminded. Turkey would continue developing its domestic fighter jet KAAN and its domestic air-defence capabilities regardless of progress on the F-35 track, he further noted.

More interesting, in our view, was Erdogan's answer when asked whether transferring the S-400s to a third country came up in his talks with Russian President Vladimir Putin. Rather than rejecting the suggestion, Erdogan said the two leaders discussed all issues on their bilateral agenda. That is deliberately ambiguous, but the absence of a denial matters. As we previously reported, Turkey was exploring ways of disposing of, transferring or otherwise neutralising the Russian system to clear the principal obstacle to renewed F-35 access. Around the same time, President Donald Trump publicly said the US would consider selling F-35s to Turkey and removing sanctions, while Turkish officials were reported to be discussing an initial delivery of six aircraft, against Turkey's broader request for more than 40. We therefore read Erdoğan's latest comments as another sign that the F-35 issue has moved beyond the rhetorical stage, although there is still no evidence of a completed bargain. The S-400 problem remains key, we assess.

This fits the broader foreign-policy pattern we have been highlighting in recent months. Turkey has been seeking a noticeably warmer relationship with the Trump administration, while avoiding a clean break with Russia and simultaneously widening its defence relationships elsewhere. In this regard, Erdogan's remarks on the same return flight were unusually explicit on that balancing act, we highlight. Turkey could deepen its relationship with the China- and Russia-led Shanghai Cooperation Organisation without abandoning the West or its existing alliances, Erdogan noted. The F-35/S-400 language belongs to the same strategy, we think. Erdogan increasingly wants the economic, military and diplomatic benefits of a repaired US relationship without being seen as returning to a conventionally Western-aligned foreign policy.

• Yilmaz says final preparations define three years of economic targets, policies and reforms

The government plans to announce its new Medium-Term Programme (OVP), covering 2027-29, on Sep 6, Vice President Cevdet Yilmaz announced through his social media X account. Preparations have reached their final stage under the coordination of the strategy and budget presidency and the finance ministry, with contributions from the relevant ministries and public institutions, Yilmaz said. The programme will set out the government's main macroeconomic targets, policy framework and structural reform agenda for the next three years.

"They do not know the country": UIA [Argentine Industrial Union] vice president sharply criticizes government (La Nación)

UIA's Martín Rappallini: "The economy cannot be measured only by the evolution of inflation" (La Nación)

Caputo responds to industrialists: "I have to defend the interests of 48mn Argentines, not those of a few businesspeople" (La Nación)

Following rating upgrade, Buenos Aires City government bonds become eligible for FAL fund investments (Clarin)

Allies harden stance, Patricia Bullrich lacks signatures and Super RIGI debate is delayed (Clarin)

• Top federation UIA says manufacturing output sits 10% below 2022 and 90,000 formal jobs were lost since August 2023
• UIA leaders argue import opening advancing faster than local cost cuts keeps hurting manufacturers

Leaders of the Argentine Industrial Union (UIA), the country's main manufacturing association, criticized the government's treatment of the sector and called for support during the transition toward a more open economy, according to comments made at an event to commemorate Industry Day.

UIA President Martin Rappallini noted that manufacturing production remains 10% below its 2022 level, with declines of 25%-30% in some sectors, while formal manufacturing employment has fallen by 90,000 since August 2023. He acknowledged that the Milei government has done positive work to reduce taxes, labor regulations, logistic costs, and support investment through the RIGI regime. However, Rapallini argued that the situation with domestic taxes, infrastructure, energy costs and financing conditions still needs to improve a lot more before local manufacturers can compete on equal footing with their international competitors.

Considering this, Rappallini said the government should help manufacturers through a transition framework based on stronger credit for working capital and investment, coordinated tax cuts across the federal, provincial and municipal governments, measures against informal imports, lower energy costs and infrastructure investment.

UIA Vice President Guillermo Moretti delivered a much harsher message, accusing President Javier Milei's government of pursuing deindustrialization and failing to understand manufacturing. Moretti argued that the administration is prioritizing mining, oil and gas while leaving the broader manufacturing sector without a development policy.

Overall, the manufacturing sector has struggled nearly across the board since Milei began opening the economy. Some adjustment was inevitable after years of trade protection enabled highly inefficient businesses to survive and expand without facing real foreign competition. However, it could be argued that the damage has been amplified by a very strong REER, the paralysis of public works in pursuit of fiscal consolidation and volatile interest rates affecting firms that depend on bank financing for working capital. The government's position is that deregulation, disinflation and broad tax cuts provide sufficient support, after which companies should compete without sector-specific assistance.

• Caputo says LLA having veto power in Congress a big difference compared to 2025
• Caputo says BCRA's FX firepower and govt's financing coverage also much stronger than in 2025

Economy Minister Luis Caputo said it is unlikely that during the run up to the 2027 general election markets will see a repeat of the volatility recorded in 2025 because the political situation is a lot more solid, the BCRA increased its firepower to deal with market runs, and the government will arrive having covered its financing needs, according to comments made to the local press following G-20 meetings.

On politics, Caputo argued that a lot of the noise that led to market volatility in 2025 was tied to the behavior of the hard opposition in Congress, which the ruling party could not stop due to the small minority it had at the time. He noted that the opposition repeatedly pushed irresponsible policies that sought to undermine the fiscal balance anchoring the macroeconomic program, hoping to cause a crisis that would lead to President Javier Milei's exit. Caputo said the situation completely changed after the 2025 midterm election, since the ruling LLA and its closest allies can at the very least defend presidential vetoes of any irresponsible initiative.

On economics, Caputo said the BCRA's firepower to deal with any FX market disruptions is also superior to what it had in 2025 coming into the election. He noted that FX reserves are rising fast, its ability to intervene through currency futures strengthened after resetting the position to nearly zero, and there are active currency swaps with China and the US for backup. In addition, Caputo said the government will arrive at the election with its financing needs covered, eliminating one more source of potential volatility.

Caputo also said that in his meetings with global leaders such as Scott Bessent, Kristalina Georgieva, and Ajay Banga, everyone expressed a lot of optimism about Argentina, commended President Javier Milei for the work the government has been doing, and even positioned Argentina as a leading case for how to approach fiscal consolidation. Asked whether anyone brought up concerns about weaker points of the economy, such as the spike in delinquency rates, Caputo said nobody mentioned anything because by this point they trust the Milei government to do the right thing.

Flávio Bolsonaro on one side, [STF Justice] Moraes on the other: [Master's] Vorcaro's messages before his arrest (UOL)

Lula's campaign wants to use the dialogue between Moraes and Vorcaro to call for an end to secrecy in the 'Dark Horse' case (Folha de São Paulo)

[STF Justice] Fachin says he will announce 'appropriate and necessary measures' by the Supreme Court following the disclosure of messages from Vorcaro to Moraes (O Globo)

[STF Justice] André Mendonça says he met with [Master's] Daniel Vorcaro after the audio recordings were leaked: 'Just once' (Correio Braziliense)

Lula speaks with Federal Supreme Court justices about the Moraes case (CNN Brasil)

[STF Justice] Fachin speaks on preserving the integrity of the STF and calls for calm (Poder360)

Quaest: 65% say the investigation into Lulinha harms Lula; 64% say the 'Dark Horse' case harms Flávio Bolsonaro (G1)

Senate approves bill establishing national policy on critical minerals (Estadão)

Senate committee approves constitutional amendment proposal to end the 6x1 work schedule (Valor Econômico)

Without mentioning Lula, Trump says he has a 'good relationship' with Brazil (Carta Capital)

• Sales rise y/y for the seventh consecutive month, supported by the Sustainable Car Program, promotions, and competition
• Sales fall 1.6% m/m in Aug, marking six months of mixed signals
• In Jan-Aug, sales rise 18.5% y/y to 1.9mn units

Total vehicle sales, excluding motorcycles, rose 22.1% y/y to 275,094 units in August, marking the seventh consecutive annual increase and the sixth at a double-digit pace, according to data released Wed. by the National Federation of Automotive Vehicle Distribution (Fenabrave). On a monthly basis, sales fell 1.6% m/m, marking six months of mixed signals. The decline was affected by the fact there were two fewer working days in August compared with July. In Jan-Aug, total vehicle sales rose 18.5% y/y to 1.9mn units.

Data Download

Passenger cars, which accounted for 77.4% of total sales in August (up from 76.1% in July), rose 23.6% y/y, marking the ninth consecutive annual increase. Sales of light commercial vehicles (LCVs) increased 18.9% y/y in August, accelerating from the month before and marking the sixth consecutive rise. Truck sales rose 9.1% y/y, extending their increase streak to three months, and bus sales rose 18.7%, swinging from a decline the month before. On a monthly basis, only passenger cars posted growth, rising 0.1% m/m, while all other segments declined.

Overall, new vehicle sales continue to show remarkable resilience despite monetary tightening, slowing economic activity, and elevated household indebtedness. The robust labor market has supported the sector, as has the Sustainable Car Program, which reduces some taxes on more sustainable vehicles, and the Move Program, which focuses on heavier vehicles. The importance of the latter factors reinforces the role of government actions in supporting demand. Fenabrave commented that growth in passenger car and LCV sales has also been supported by intense competition among brands, prompting promotional campaigns.

• Lula's vote falls to 42% in Sep from 44% in Aug, Flávio's rises to 41% from 39%
• Considering the poll's margin of error, the race is tied
• Avante's Cury rises to third in a first round poll with 10% of the vote

President Lula da Silva's runoff lead over Senator Flávio Bolsonaro dropped to 1pp (41% vs. 42%) from 3pps the month before, according to an Aug 30-Sep 1 poll conducted by Quaest and published Wed. Considering the poll's margin of error (+/- 2pps), the race is virtually tied. Lula's vote tally fell to 42% from 44% in the previous Quaest poll commissioned by GloboNews, while Flávio's rose to 41% from 39%. Compared with the earlier poll conducted on Aug 10-13, Lula's lead fell from 5pps. Lula's weaker performance follows a decline in his approval rating to 45% from 46% in August, while disapproval remained at 48%. Against other candidates, Lula holds a wider lead in runoff scenarios. Against Avante's Augusto Cury, who has gained traction in the race in recent weeks, Lula holds a 6-pp lead (40% vs. 34%).

Data Download

In the first round, Lula remains the frontrunner with 37% of voting intentions, followed by Flávio Bolsonaro with 29%. Both posted slight declines from the previous month, while Avante's Cury gained 9pps to rise to third place with 10%, with strong support from independent voters. The increase is in line with Cury's growing presence on social media following the first presidential debate aired by Band on Aug 23. Cury, a psychiatrist and best-selling writer, is a moderate right-wing candidate who criticizes both sides but has never held public office. Missão's Renan Santos follows with 3% of voting intentions, while the PSD's Ronaldo Caiado and Novo's Romeu Zema have 1% each.

Flávio's rejection rate rose slightly to 55% from 54% the month before, while Lula's increased to 53% from 52%. Augusto Cury's rejection rate also rose to 25% from 16% in August as he became more widely known.

Regarding the ongoing investigations involving Lula's son and Flávio's relationship with Banco Master's Daniel Vorcaro, more than 60% of Brazilians say the cases harm both candidates. More than half also say the explanations provided by both were not convincing.

Overall, the Quaest poll shows a tighter race than those reported by Datafolha and Atlas. As expected, the ongoing Federal Police investigations have shaken the political landscape roughly a month ahead of the elections. In May, when Flávio's relationship with Vorcaro was disclosed through an audio message in which he asked Vorcaro for money to finance a movie about his father, ex-President Jair Bolsonaro, Flávio's polling performance fell significantly. However, the investigation involving Lula's son appears to have allowed him to recover some of those losses. While Lula still holds a slight advantage, the race remains open and is likely to go to a runoff on Oct 27.

Recent revelations from the Master case involving additional transfers from Vorcaro to finance former President Jair Bolsonaro's movie, as well as Vorcaro's relationship with STF Justice Alexandre de Moraes, who is considered an ally of Lula, could shake the race further in the coming weeks. Folha de São Paulo has reported that the Lula campaign is seeking to lift the secrecy surrounding the case involving the Jair Bolsonaro movie, which could be aimed at harming Flávio's campaign further.

• Copom meeting: Sep 15-16, 2026
• Current policy rate: 14.00%
• EmergingMarketWatch forecast: 25-bp cut (to 13.75%)

Restrictive monetary policy continues to weigh on Brazil's economic activity, as reflected in the slowdown in GDP growth in Q2. This should strengthen the Copom's assessment of the effectiveness of its policy and support an additional 25-bp cut in the Selic rate to 13.75% at its September meeting. Despite accelerating to 2.0% y/y in Q2, GDP growth slowed to 0.5% q/q from 1.1% the previous quarter. Growth came in slightly above the median market expectation, but showed signs of weakening in an important component: household consumption. Private consumption growth slowed to 0.5% y/y and fell 0.4% q/q in Q2, reflecting mixed effects from a resilient labor market and a restrictive monetary environment that raises financing costs and indebtedness. Government spending, meanwhile, accelerated, in line with expectations in an election year.

The July industrial production data reinforce the view of an economic slowdown over the year due to tight monetary policy. Industrial output rose a slight 0.2% m/m and fell 0.5% y/y, marking the first annual decline in four months. After oil and gas extraction supported industrial growth in H1, mining continued to expand but not enough to offset the decline in manufacturing. The deceleration at the beginning of H2 is likely to allow the Copom to cut the Selic by 25bps at its Sep 15-16 policy meeting.

The labor market remains one of the main factors being monitored by the Copom. The unemployment rate fell to 5.3% in the rolling quarter ended in July, reaching the lowest level for the month in the time series, but in line with market expectations. Formal job creation, however, came in below expectations in July, showing possible signs of labor-market weakening. This scenario is unlikely to impede another Selic cut in September, but should reinforce the need to keep the policy rate at a restrictive level for long enough to bring inflation back to the target midpoint.

Fiscal policy also remains on the Copom's radar, particularly with elections approaching. The government presented the 2027 budget with a primary surplus target of 0.5% of GDP, which is to be achieved only due to authorized spending exceptions. The de facto primary result would be a BRL 18.6bn surplus (0.1% of GDP). Some fiscal-rule triggers were activated to allow greater control over expenditure growth, but there is still significant spending pressure from social benefits linked to the minimum wage, which rises annually above inflation, as well as other mandatory expenditures. The result also depends on high revenue collection in a scenario of slowing economic activity, reinforcing the vicious cycle created by the fiscal framework: expansionary fiscal policy is used to support economic activity and revenue collection, while simultaneously putting pressure on inflation and requiring restrictive interest rates, which in turn increase pressure on public debt.

Overall, recent economic data consolidate the expected slowdown in economic activity resulting from monetary tightening, as anticipated by the Copom. This scenario should allow the committee to cut the Selic by 25bps to 13.75% in September, continuing its calibration cycle. Despite this, the economy remains resilient, with a strong labor market and demand-side inflationary pressures from government measures supporting consumption. This reinforces the need to keep the Selic at a restrictive level to ensure inflation returns to the 3.0% inflation target. Thus, upcoming Copom decisions will depend on additional data, and the Nov 3-4 meeting could result in another 25-bp cut or a pause in the cycle to assess the impact of the election results on expectations.

• Output swings from 1.7% y/y increase in June and misses consensus for no change
• Output rises 0.2% m/m in July after two consecutive drops, but comes in below consensus for 0.6% increase
• Industrial output rises 1.1% y/y in Jan-Jul

Industrial output fell 0.5% y/y in July, swinging from a 1.7% increase in June in the first decline in five months, according to data released Wed. by the stats office IBGE. The print came in below the consensus for no change (0.0% y/y). In the breakdown, growth in the extractive industry (+2.5% y/y) was not enough to offset the decline in manufacturing (-1.1%). On a monthly basis, industrial output rose slightly by 0.2% m/m in July, marking the first increase after two consecutive declines, likely reflecting a base effect. The print also missed the consensus for a 0.6% m/m increase. In Jan-Jul, industrial output rose 1.1% y/y.

Data Download

Twelve of the 25 industrial segments monitored by the IBGE declined y/y in July. On the negative side, the largest contributions came from chemicals (-6.9% y/y), food (-2.6%), and pharmaceuticals (-13.7%). Machinery and equipment, apparel, other products, textiles, rubber and plastics, and furniture also declined y/y in July. Meanwhile, increases in vehicles and extractive industries partially offset the declines. Tobacco, electrical equipment, beverages, metallurgy, non-metallic minerals, and oil and biofuels derivatives also rose y/y.

By economic category, three of the five groups recorded declines in July. Non-durable goods fell 4.6% y/y, marking the first decline since November 2025, while capital goods fell 2.4%, dropping for a fourth consecutive month. Consumer goods fell 1.8% y/y. On the positive side, durable goods rose 4.6% y/y and intermediate goods grew 0.3%.

On a monthly basis, industrial production rose 0.2% m/m in July, marking the first increase after two consecutive declines and missing consensus for a 0.6% increase. Electronic products, food, and coke, petroleum products, and biofuels exerted the largest upward pressure. In contrast, extractive industries exerted the largest downward pressure, marking the third consecutive monthly decline, followed by printing, other products, metallurgy, and chemicals.

Overall, industrial output posted a worse-than-expected result in July, reinforcing the impact of tight monetary policy on economic activity. While the monthly figure likely reflects a base effect after two consecutive declines, the yearly decline comes after a 0.3% y/y increase in July 2025. The results are also aligned with the decline in S&P's Manufacturing PMI in July, which fell to 47.5pts. In our view, the print strengthens the BCB's forecast for an economic slowdown in H2, supporting another 25-bp Selic cut to 13.75% at its September sitting.

Court pauses the process vs Ernesto Ruffo Appeal for fuel smuggling (La Razón)

Sheinbaum says US govt actors try to weaken countries' sovereignty but couldn't in Mexico (La Jornada)

Foreign Minister Roberto Velasco prepares a trip to China next week (El Financiero)

Ex-President Petro warns of the risks in Mexican elections and potential meddling by the US (El Financiero)

The business council says the regime's filter on foreign investment is aligned with the US (Reforma)

Exporting manufacturers support reforming foreign investment but warn on the timing (Expansión)

PAN announces assemblies to show the lies told by Sheinbaum in her second state of the union address (Animal Político)

PEMEX's oil production stagnates in the first seven months of 2026; gas seems to follow (Expansión)

Chamber proposes changes on how the IEPS tax is charged at the acquisition of alcohol (El Economista)

Fracking requires USD 108bn and up to a decade to produce the gas now demanded by Mexico (Expansión)

• Says disinflation would have to extend beyond transitory factors, as the CB anticipates
• Heath celebrates recent CPI inflation readings but warns MPC must focus on core inflation
• Suggests upward pressure on services prices is broad, diverging from other board members
• Says monetary policy might still be favoring the disinflation process, echoing the view of some dovish board members
• Says Banxico won't be pressured immediately to raise its policy rate by a Fed hike

CB Deputy Governor Jonathan Heath suggested the CB could agree to cut its Monetary Policy Rate (MPR) by mid-2027 or in late 2027, so long as CPI inflation decelerates towards the CB's 3.00% inflation target, as the CB currently anticipates, according to comments made in a podcast published on Wednesday. The deputy governor said the CB cannot trim its policy rate in current conditions, considering CPI inflation must show convergence to the CB's target beyond transitory factors before it can do so. In any case, the deputy governor said the rate should only be cut to close to the edge of neutral territory if disinflation persists, not detailing how much easing this would entail.

The deputy governor celebrated recent CPI inflation data, saying it's the best result in years. But he warns this is driven by transitory factors, noting non-core inflation has been rather benign. The deputy governor insists the Monetary Policy Council (MPC) should focus on core inflation instead. On core inflation, Heath flagged diverging factors, noting merchandise prices are explained by external factors, including the exchange rate; in turn, he recognized service prices show resilience, although finally slowing in recent months. The deputy governor noted several services are showing broad upward pressure, something we understand diverges from the position of other board members, considering at least two have minimized the nature of the pressure, linking it to specific rising costs, particularly in food-related services.

In contrast, Deputy Governor Heath echoed comments made by the dovish side of the MPC, saying the current monetary policy stance might be contributing to ongoing disinflation. He said the monetary policy may impact prices with a lag that exceeds two years and warned the policy rate only entered neutral territory in late 2025, less than a year ago. While this might be possible, we note there is no clear evidence the policy rate is contributing to ongoing disinflation, considering the resilience of service prices and noting core inflation has slowed somewhat modestly despite weak economic growth and a sharp appreciation of the currency.

All in all, the deputy governor says inflation risks remain upward tilted, seeing upward pressure on service prices despite an open output gap. On this, he said there are two hypotheses to consider: 1) potential GDP growth might be lower than estimated, suggesting the output gap is not as wide as believed, or 2) the output gap might be having a weaker than expected impact on inflation.

Finally, on potential tightening by the Federal Reserve, Heath said that it wouldn't be enough to force the CB to raise its MPR immediately, considering the currency's strong position. However, he said that further tightening by the Fed would probably bring a reaction by the CB on this front, considering the policy rate differential stands historically low.

Overall, Deputy Governor Heath gave the first clear monetary policy projection after the CB failed to give clarity in the latest minutes and quarterly report presentation. To be clear, the deputy governor said the policy rate's position is "fine" and warned against any short-term easing. However, if CPI inflation slows as the CB expects (a forecast not shared by the market), the deputy governor suggests there might be conditions to cut the policy rate by mid-2027. This is earlier than the market anticipates, with the consensus remaining for MPR stability throughout 2027, perhaps showing the market is not as optimistic about the inflationary outlook as the CB is.

• Sales gained momentum on a weaker base, down 1.0% m/m
• Strong domestic sales continue to show resilient private demand

Domestic auto sales grew 4.3% y/y in August, per data published by the stats office INEGI on Wednesday. This shows an acceleration of 0.9pps m/m. However, this acceleration comes on a base effect, with sales down by 1.0% m/m, to 129,479 units.

Data Download

Overall, the strong pace of domestic auto sales continues to show resilient private demand in mid-Q3. This resilience is consistent with healthy fundamentals, with the labor market remaining strong, despite recent setbacks, real wages still growing, and consumer lending maintaining a healthy pace.

We note the resilience of domestic auto sales comes despite weaker imports from China, which plunged by 31.1% in H1 per data published recently by the Economy Ministry, on the back of the tariff imposed by the administration at the turn of the year. This suggests higher prices in the market have not made a dent on auto sales, again showing healthy private demand momentum.

• Next MPC meeting: September 24
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

The Monetary Policy Council (MPC) did not give a time horizon on the next monetary policy actions at the presentation of its quarterly inflation report last week; indeed, the board was uncommitted to any Monetary Policy Rate (MPR) adjustments in the foreseeable future, in an unsurprising stance. Despite this stance being unsurprising, with the market expecting MPR stability throughout 2026 and 2027, the position assumed by the MPC was welcomed, shrugging off the implications of two comments published in the latest minutes, when two MPC members said they agreed to hold the policy rate at 6.50% "on this occasion", which suggested they could be looking to cut the policy rate much earlier than anticipated by the market.

Data Download

We assume this was the dovish stance of Governor Victoria Rodríguez and Deputy Governor Omar Mejía, who have often bent over backwards to justify further monetary easing amid lingering inflationary pressure. Indeed, we expect both to back monetary easing earlier than much of the market anticipates, barring an unanticipated acceleration of general inflation in the coming months. Still, we do not expect either to promote any monetary easing in the three remaining sittings for the year.

Deputy Governor Mejía has minimized lingering service inflation pressure with all sorts of pretexts. He did so again at the presentation of the quarterly inflation report, in our view. In any case, we believe the MPC's comments generally minimized this lingering pressure, with some noting its slowing and others accusing transitory shocks of the disappointing performance, highlighting the impact of food-related services.

Data Download

Our view of service inflation is not so rosy. While service inflation has indeed slowed in recent fortnights, from its peak in April H2, we note it's accelerated since 2025-end, despite a sharp deceleration of overall inflation. Moreover, both housing and education services have accelerated so far in 2026, suggesting the mid-term trend is not determined by the pressures selected by many in the MPC at last week's presentation. On the contrary, we believe the upward pressure is broader; we speculate it might be explained by the resilience of real wages. If so, we warn this pressure might persist in coming years, as the government continues to raise the minimum wage much faster than CPI inflation, increasing the share of workers benefiting from the measure each year.

Despite dovish comments, the market expects the MPR to remain steady throughout the foreseeable future, according to the latest consensus poll published by Banxico on Tuesday. 73% of the analysts polled anticipate the MPR will remain equal to its current position by Q4 2027, showing a solid consensus across the forecast horizon. This, in our view, diverges from the MPC's decision to give no time frame for the current pause. Indeed, even when asked about the possibility of an MPR cut before year-end, CB Governor Rodríguez failed to reject such a possibility, insisting next actions will be data dependent.

The CB consensus poll shows an interesting division among analysts on what will be the MPC's next action, with 27% predicting a cut by Q1 2028 and 19% anticipating a hike by then. This might reflect the analysts' inflation projections. However, with the market anticipating CPI inflation will remain within the CB's tolerance band, we see no chances of any monetary tightening over the foreseeable horizon.

Overall, we expect the board will hold the policy rate at 6.50% throughout the rest of the year and through early 2027, hoping for core inflation to slow further while it does so. We assume the dovish majority would like to clip the policy rate in 2027; however, it remains to be seen if they'll do so even if CPI inflation, as expected, shows no clear convergence towards the CB's 3.00% target. Indeed, late 2026 comments and the pace of CPI inflation to close the year might increase the chances of easing next year. Currently, the market expects monetary policy stability through the rest of 2026 and through 2027, something that might not recognize how dovish the board is.

• Non-oil private sector shows signs of stabilisation
• Rate of job creation accelerates
• Business sentiment improves in August

The headline PMI climbed nearly three points from 46.8 in July to 49.6 in August. The latest reading was the highest recorded in seven months and signalled only a marginal decline in business conditions, according to S&P Global. Readings below 50 show a contraction, while readings above 50 are an expansion.

Data Download

Egypt's non-oil private sector showed encouraging signs of stabilisation in August. The improvement was broad-based, with softer declines in both output and new orders, while employment rose at a near-record rate and business confidence reached its highest in over four years. At the same time, inflationary pressures intensified in August, following marked cooldowns in June and July. Material shortages and liquidity concerns were also highlighted, with firms often reducing their purchases in response.

The easing contraction was most visible in the survey's output and demand metrics. Although new business continued to fall during August, the pace of decline was modest and the least marked since February, as a number of companies commented on signs of improving market activity. Output levels also fell to a lesser extent, helped by a much slower downturn in service sector activity.

Another notable development in August was an uplift in employment levels. Not only was this the first increase since October 2025, but the rate of job creation was the second-fastest since the survey began over 15 years ago. The rise in workforce numbers was partly a response to capacity pressures that built up over recent months. The hiring spree led to backlogs of work stabilising after three months of accumulation.

Finally, business sentiment improved markedly in August, reaching its highest level since June 2022. More than 21% of respondents expect growth in the coming year, which they linked to anticipated new projects, tourism expansion, and branch openings.

Chinese President Xi Jinping concludes 48-hour historic visit to Egypt (Ahram Online)

Egypt-China partnership expands with new investment & technology deals (Egypt Today)

Egypt's garment exports reach USD 2.14bn in first seven months in 2026 (Egypt Today)

Egypt, Oman explore joint industrial zones to deepen economic integration (Daily News Egypt)

Mansour Group, China's Tianneng sign MoU to explore battery manufacturing investment in Egypt (Daily News Egypt)

Egypt moves to ease manufacturers' access to foreign markets (Egypt Business Directory)

• Corporate tax relief for small businesses now extends to Dec 31, 2029
• Eligible small businesses must still register and file returns

The UAE has extended its Small Business Relief programme for corporate tax purposes until the end of 2029, giving eligible small businesses and start-ups additional time to benefit from simplified tax requirements, according to official sources. Under Ministerial Decision No. 131 of 2026, businesses can continue claiming the relief for tax periods ending on or before Dec 31, 2029. The UAE previously planned to end the measure after tax periods concluding on Dec 31, 2026.

The extension keeps the programme's existing AED 3mn (USD 817,000) annual revenue threshold unchanged. Resident taxable businesses whose revenue does not exceed that level can claim Small Business Relief, subject to the conditions set out in the corporate tax legislation.

The measure does not eliminate businesses' compliance obligations. Companies benefiting from the relief must still register for corporate tax and submit simplified tax returns within the prescribed deadlines. The Federal Tax Authority has stressed that eligible businesses remain subject to these requirements even when they do not have corporate tax to pay.

The extension is significant because it provides smaller companies with greater certainty as the UAE's corporate tax regime becomes more established. The UAE introduced a 9% federal corporate tax on taxable income above AED 375,000 for financial years beginning on or after June 1, 2023. Small Business Relief provides a targeted exception for smaller enterprises rather than changing the wider tax framework.

The Ministry of Finance said the extension would help strengthen the business environment while maintaining a competitive tax system aligned with international standards.

The government is therefore using tax policy to support its broader economic diversification strategy. Rather than reducing the corporate tax rate across the economy, it is preserving targeted relief for smaller companies while maintaining the wider 9% framework.

• Index rises to highest level since February
• However, employment decreases slightly

The Dubai PMI rose sharply from 51.7 in July to 54.1 in August, signalling a strong improvement in business conditions, according to S&P Global. Output and new order growth rose to six-month highs in August.

Data Download

Dubai's non-oil private sector experienced stronger business activity growth during August as companies highlighted higher client spending and an improvement in export trade. The data also signalled the quickest rise in input stocks since December 2017.

Meanwhile, employment declined slightly, contributing to capacity pressures.

In contrast to the UAE trend, Dubai non-oil companies recorded an acceleration of price pressures in August, with total input costs rising at the fastest rate in four months.

• Index rises to highest level since December 2024
• Employment falls for second consecutive month
• Business expectations for upcoming year become more optimistic

The seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) rose from 52.7 in July to 55.3 in August, pointing to an acceleration in growth for the second consecutive month. Furthermore, the improvement in operating conditions was the fastest since December 2024, when the index reached 55.4.

Data Download

Non-oil companies reported a substantial rise in new business in August, the joint-strongest for more than two years, as well as sharper output growth, inventory expansion, easing supply constraints and lower price pressures.

The upturn in August reflected a combination of growing sales momentum and renewed stock buildouts. The former was highlighted by a steep increase in new work inflows that was the joint-quickest since March 2024. Companies remarked on an improvement in customer activity that came amid an easing of economic caution arising from the Middle East conflict. Export demand also increased, marking back-to-back expansions following a period of decline throughout the second quarter.

Output levels rose to a greater extent during August, representing the fastest upturn for six months. As well as rising order book volumes, non-oil companies also related higher activity to ongoing project progressions, client digital migrations and reduced logistics challenges.

However, companies also reported a build-up of unfinished orders. The pace of new order growth reportedly left some companies with insufficient time to scale up operations. Furthermore, ongoing uncertainty surrounding the regional conflict and its macroeconomic effects made companies hesitant to recruit staff, contributing to a reduction in employment levels for the second time in three months.

Looking forward, business expectations for the coming year improved in August, reaching their highest level since April. Optimism was partly linked to improving sales trends, as well as optimism surrounding construction projects and hopes for an easing of regional tensions.

• Stop rates unchanged for two tenors; 364-day rate decreased
• CBN allotted NGN 865.7bn in total
• Subscriptions reached NGN 3.35tn against NGN 750bn offer

The CBN offered NGN 500bn worth of one-year T-bills at its regular auction held on Sep 2 and ultimately allotted 152% of this at NGN 762.2bn, according to data released by the CBN. Demand for the one-year bills was high at NGN 3.24tn (97% of all subscriptions and more than six times the offer). Total investor interest across three tenors reached NGN 3.35tn, against the combined NGN 750bn offer. The CBN only sold NGN 27.3bn of 182-day T-bills (27% of the NGN 100bn offer). The 91-day bills were allotted at NGN 76.3bn, at 51% of the NGN 150bn offer. Across the three tenors this week, the CBN sold a total of NGN 865.7bn which is 26% of total bids. This allotment is up from NGN 762.9bn last week.

Data Download

The CBN lowered the stop rate on its 364-day T-bill by 31bps to 16.84% (from 17.15% previously), after also lowering it last week. This is the first week the stop rate has been below 17% since June. According to some analysts, the intense appetite and resulting rate decline strengthen the case for moderation in interest rates. The MPC will meet later this month on Sep 21 and 22. Meanwhile, stop rates on the 91-day and 182-day bills were unchanged this week at 16.3% and 16.5% respectively.

Fake agency: Reps uncover 58 accounts, probe N400m deal (Punch)

2027 poll: INEC fears AI-powered disinformation (Punch)

Workers demand N300,000 minimum wage (Punch)

NLNG/SEPNU leads as domestic cooking gas supply rises (Punch)

W'Bank backs tariff, subsidy reforms in Nigeria's power sector (Punch)

Aliko Dangote: FG's Reforms Driving Nigeria's Economic Recovery, Restoring Investors' Confidence (ThisDay)

Wike: I'll Be Atiku, Obi's Main Target If Tinubu Loses 2027 Polls (ThisDay)

FG urged to cut aviation charges as high costs keep airfares out of reach (Nairametrics)

Bolt vows to stay in Nigeria despite Uber exit, industry challenges (Nairametrics)

SEC proposes N3 billion minimum capital for forex brokers, N5 billion for trading platforms (Nairametrics)

• Exit comes despite Uber's USD 100mn investment in Moove in 2024
• Rising fuel, maintenance costs, commissions squeezed driver margins

Uber officially shut down its ride-hailing operations in Nigeria on Wednesday (Sep 2) after announcing it on the same day, ending its 12-year presence in the country. This exit comes despite Uber's USD 100mn investment in Lagos-based mobility fintech Moove in 2024. Moove, Uber's vehicle-financing partner in emerging markets, later raised USD 250mn at a USD 2.1bn valuation as it expanded beyond Africa. Uber said the decision to withdraw from Nigeria follows a review of its business. Although Uber wasn't specific, this likely reflects growing challenges for ride-hailing platforms in Africa where high operating costs and regulatory hurdles make profitability difficult. The company also exited Uganda on Wednesday as part of a global restructuring that will eliminate around 3,300 jobs (10% of its workforce). Uber previously withdrew from Tanzania in Jan 2026 and Ivory Coast in Sep 2025.

In Nigeria, drivers have faced rising fuel and maintenance costs alongside commissions of up to 25-30%, which prompted drivers to go on a three-day strike in Lagos in March. Ride fares struggled to keep pace with inflation and this squeezed driver margins. Regulatory tensions have also increased, including a suspension of Uber and Bolt operations at Nigerian airports in August after a dispute with the Federal Airports Authority of Nigeria over airport pick-up operations. Uber's departure leaves Bolt as the leading ride-hailing platform in Nigeria.

Question:

What were the Jan to July figures in 2025, so we can compare this period y/y for the 7 months?

The question was asked in relation to the following story: NNPC remits NGN 7.91tn to Federation Account from Jan to July

Answer:

According to the Aug 2025 summary report, the figure for the first 7 months was NGN 8.86tn. So, the first 7 months of 2026 are down 10.7% y/y. It appears the main reason is lower actual crude and condensate sales volumes which are weaker in several months of 2026 compared with 2025. July 2026 was down to 21.5mn barrels, from 25.5mn in July 2025 (-15.7%). May was very weak (18.95mn in 2026 versus 24.8mn in 2025, -23.6%). The lower sales volumes are likely due to the rising crude allocations to domestic refining and barrels pre-committed under forward-sale arrangements.

• Employment growth accelerated to a 15-month high
• Selling-price inflation rose to its strongest pace since March
• Composite PMI remained stable at 54.3

India's services-sector activity strengthened in August, with the HSBC India Services PMI Business Activity Index rising to 54.1 from 53.3 in July, according to S&P Global. The reading was just below the long-run average of 54.5. However, despite the improvement, the pace of growth was still the second-weakest since March 2022.

Data Download

New business also increased more quickly than in July, supported by stronger customer demand and marketing activity. Even so, sales growth remained the second-slowest in nearly four-and-a-half years, with firms citing subdued bookings, strong competition and weaker demand for some services. External demand remained supportive. New export orders increased at a solid pace, broadly similar to July, with gains reported from markets including Australia, Brazil, Canada, Japan, Malaysia, Singapore, Sri Lanka and the UAE.

Employment provided a more encouraging signal. Services firms increased staffing at the fastest pace in 15 months. Firms linked hiring to efforts to support customer service, sales and digital operations.

Price pressures increased modestly. Input-cost inflation edged higher but remained moderate by historical standards, with firms reporting higher spending on labour, electricity, digital platforms, marketing and regulatory requirements. Selling prices rose at the fastest pace since March as businesses passed on part of the increase in operating costs.

Business confidence was broadly unchanged from July and remained below its historical average, although firms continued to expect improvements in demand, market conditions and technology adoption.

The Composite PMI remained unchanged at 54.3, as the stronger services performance offset weaker manufacturing activity.

In our view, the August data point to some stabilisation in services after July's sharp slowdown, but momentum remains weaker than the levels seen through much of the past few years. The stronger hiring signal is encouraging, while resilient export demand provides an additional buffer. However, subdued bookings, competitive pressures and rising selling prices suggest that the recovery remains uneven and should be watched alongside the continued weakening in manufacturing.

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