Poland walking a tightrope with loose fiscal stance

The reaction in Polish financial markets to the government’s draft budget for 2026 outlined this week, which envisages a deficit of 6.5% of GDP, has been limited, but we think investors may be too sanguine about the direction for the public finances. And although we still expect the Polish central bank to cut its policy rate by 25bp at its meeting next week, the loose fiscal stance supports our view that monetary loosening further ahead will be more limited than most expect.