PLN: Zloty Gains Along EM Peers, FinMin Pledges More Fiscal Consolidation Steps

EUR/PLN trades 75 pips below neutral levels at 4.2592 and bears look for a sell-off towards May 15 low of 4.2230, while bulls keep an eye on Apr 16/Dec 25 highs of 4.3102/4.3114. Next week's MPC meeting may provide some directionality, with a miss in flash September CPI and extension of electricity price freeze increasing the probability of an imminent cut, even as most analysts seem to be leaning towards delay until November.

• Finance Minister Andrzej Domański pledged to take additional fiscal consolidation steps after an updated medium-term fiscal strategy showed that the debt-to-GDP ratio is on track to hit the statutory 55% threshold by 2028, which would force the government to implement harsh austerity measures.
  • For a reference year t, if the ratio is between 55% and 60%, the government must adopt a balanced budget or a budget ensuring the decline in the debt-to-GDP ratio in year t+2, freeze public-sector wage hikes, and raise pensions by no more than the rate of inflation.
  • Regardless of fiscal consolidation measures. the government can still take some spending 'off the books' and finance it via extra-budgetary funds. While this quasi-government debt does count into general government debt, it does not fall under the domestic definition.
• Junior coalition party Poland 2050 (P2050) remains in disarray amid an ongoing leadership vacuum and tensions with coalition partners. The party nominated Katarzyna Pełczyńska-Nałęcz to the position of Deputy Prime Minister despite reports of her difficult relationship with Prime Minister Donald Tusk.
• S&P Global Manufacturing PMI improved to 48.0 in September, marginally exceeding consensus forecast but falling short of the breakeven 50 level.
• POLGBs have clawed back their initial losses. The WIG Index has added 0.3%; WIG20 is up by 0.5%.