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Tusk Announces 5% VAT on Food to Return in April

POLAND
  • Prime Minister Doanld Tusk announced that Poland will return to 5% VAT on food from April. Poland slashed VAT on food staples to zero in February 2022 to help consumers deal with surging inflation. The central bank has cited uncertainty about the economic policies of the new government, including on the issue of VAT on food. In January, Governor Glapinski said the return of 5% VAT on food would boost CPI by 0.9ppts.
  • Given the NBP’s two-day MPC meeting has already begun, the announcements on anti-inflation measures crossing while MPC members are locked in their monetary policy meeting introduces a degree of uncertainty, with it remaining unclear if the changes could be incorporated into the new inflation projections at such short notice.
  • Credit Agricole noted that the NBP will have likely met today under the assumption that the standard 5% VAT rate on food will be restored in April or July. Meanwhile, UniCredit expect inflation to ease to around the NBP’s target at the end of 1Q2024 before ending the year around +4.5% Y/Y – assuming that there will be a resumption of food VAT of 5% and a gradual adjustment in energy prices in 2H2024.
  • The moderate downtick in EURPLN in recent trade has coincided with the announcement of tweaks to the aforementioned measures. Despite the recent downtick, EURPLN remains contained within yesterday’s ranges, with sights still on key support at 4.2935, the Dec 13 low.
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