The data released in October confirmed the declining performance of the Polish economy, while pointing out a slightly faster inflation fall towards the target than expected. Fairly rapid decline of inflation expectations and poorer retail figures should encourage the doves on the Monetary Policy Council. While the Polish headline PMI has improved slightly, the key production sub-index remains far below 50 points. According to our forecasts the year-on-year inflation rate might fall to close to 3% by the end of this year. We believe that the newly released inflation forecast of the NBP will bear out the above trends and make the National Bank of Poland (NBP) start to cut interest rates; our opinion is that the rates are likely to be cut twice (with the second cut to be made in January). Meanwhile the Czech political scene has stabilised somewhat. According to an agreement reached yesterday between the two factions within main ruling party ODS, the two VAT rates should be raised next year to 15% and 21%. Also the 7% solidarity tax on high earning individuals remains a part of the package. Two of original rebels will support the government, while the remaining three are resigning. Hence, at least for now, it seems the risk of early elections has diminished.