Macro and politics

* We anticipate the Monetary Policy Committee (MPC) to initiate rate cuts with a 150bps reduction at today’s rate-setting, in line with the market consensus. The MPC decision will be announced @ 14:00 local time. However, the CBRT has recently published its Monetary Policy for 2025 document and stated that in 2025, the MPC will hold 8 meetings instead of 12. Following the announcement of fewer meetings for the coming year, we do not entirely rule out the possibility of the MPC starting to cut rates by around 200bps – 250bps today.

* The CBRT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of December 13 – 20 today @ 14:30 local time. Based on our calculations upon the CBRT’s analytical balance sheet, we estimate that during the week of December 13 – 20, the net international reserves dropped by USD3.7bn to USD61.7bn and the gross FX reserves slumped by USD7.2bn to USD156.4bn. To recall the data from the previous week (December 6 – 13): The CBRT’s gross FX reserves rose by USD4.1bn to USD163.6bn and net international reserves increased by USD410mn to USD65.4bn, while net reserves excluding swaps climbed by USD1.7bn to USD50bn. Moreover, in the week of December 6 – 13, the equity market experienced a foreign inflow of USD318.7mn, while there was a net foreign outflow from the bond market at an amount of USD243mn (excluding the repo transactions). Besides, the foreigners’ share in total bond stock rose to 7.6% from 7.5%. The residents’ FX deposits surged by USD1.6bn (gold accounts excluded, EUR/USD parity adjusted) in the period of December 6 – 13, while total FX deposits (including gold, price adjusted) climbed by USD1.4bn in the week of December 6 – 13.

* The Real Sector Confidence Index (RSCI) eased to 99.1 level from 100.4 as of December, sliding below the 100-threshold for the first time since September and indicating a pessimistic outlook to the economic activity by the real sector agents covered by the Survey. The seasonally adjusted RSCI, moreover, dropped to 102.7 from 103.4. In addition, the unadjusted Capacity Utilization Rate (CUR) decreased to 75.8% from 76.1%, while the adjusted CUR remained unchanged at 75.6% in December. The leading indicators so far suggest a slightly more optimistic activity outlook for the last quarter compared to the previous one. Although the rising propensity to consume in the final months of the year plays a crucial role, we believe that front-loaded demand amid a decelerating disinflation process is the driving force behind the relatively vivid activity signals for the latest quarter. Accordingly, the evident rise in consumption in recent months raises the likelihood of positive quarterly growth in 4Q24. Nonetheless, we anticipate that stringent financial conditions will place additional strain on the industrial sector, with annual GDP growth expected to decelerate further over the next two quarters. Correspondingly, we project GDP growth to conclude 2024 at around 2.9%, with a further slowdown to 2.6% by the end of 2025.