Recent developments in Brazil and Poland highlight the significant influence of fiscal policy and inflation surprises on their respective currencies. In Brazil, Commerzbank’s Michael Pfister notes that despite a key rate of 14% and inflation falling to just under 4.5%, expansionary fiscal policy has offset restrictive monetary conditions, resulting in solid GDP growth. The government has approved numerous new spending measures ahead of the upcoming election in early October, raising concerns about slow budget consolidation. Pfister emphasizes that upcoming fiscal data will be more decisive for the Brazilian Real than monetary policy, and expects challenging weeks ahead for the currency as fiscal risks weigh on its outlook [1].
In Poland, Societe Generale reports that the Polish Zloty strengthened while domestic bonds sold off after August inflation accelerated to a 14-month high of 3.4% from 3.0% in July, and second-quarter GDP was revised up to 1.0% quarter-on-quarter (3.9% year-on-year). The government’s draft 2027 budget projects a fiscal deficit of 7.1% of GDP, with a tax overhaul shifting the burden toward corporates, fulfilling a campaign promise ahead of next year’s elections. Prime Minister Tusk aimed to keep the deficit below 7%, but argued that stricter limits would hinder economic growth. Rating agencies have warned that the lack of a credible fiscal consolidation plan could increase the risk of a downgrade and higher borrowing costs. The 10-year POLGB yield rose above 6.0% for the first time since January 2025, and EUR/PLN retreated below 4.33 [2].
ING strategist Frantisek Taborsky adds that Polish inflation surprised to the upside in August, mainly due to higher fuel prices, while food prices fell. Regional markets have shifted back into hawkish mode following recent Federal Reserve comments and geopolitical tensions, with Czech and Polish curves pricing multiple rate hikes. The Polish market is pricing nearly three hikes, which should limit further currency weakness and could support gains given widening rate differentials versus the euro. Taborsky also notes a busy data calendar for Central and Eastern Europe, with upcoming releases in the Czech Republic, Turkey, and Hungary [3].
According to [1], fiscal policy is overshadowing monetary tightening in Brazil, while [2] and [3] highlight that fiscal risks and hawkish repricing are shaping the outlook for the Polish Zloty. Both countries face market challenges due to rising spending and inflation surprises, with analysts emphasizing the importance of upcoming fiscal and economic data.
CONCLUSION
Fiscal risks and expansionary policies are weighing on the Brazilian Real and Polish Zloty, despite supportive macroeconomic data and hawkish repricing in regional markets. Analysts expect challenging conditions ahead for both currencies, with fiscal data and rate expectations likely to drive market sentiment in the coming weeks. Investors should closely monitor upcoming fiscal releases and policy developments for further direction.