Macro and Politics

* The CBT will release the February Sectoral Inflation Expectations survey @ 10:00 local time. According to the January Sectoral Inflation Expectations survey results, the decline in the 12-month ahead annual CPI expectations continued to decline, with the decrease accelerating significantly compared to the previous month. According to the January survey results, 12-month-ahead annual inflation expectations decreased by 1.7 points to 25.4% for market participants, by 3.8 points to 43.8% for the real sector, by 4.3 points to 58.8% for households. The pronounced acceleration in the downward trend of inflation expectations as of January reinforces our expectation that the CBT is likely to proceed with another 250bps cut in interest rates in March. We anticipate that the decline in annual inflation will prevail, albeit at a slower pace, in the second half of the year compared to the first half. Accordingly, we believe that after the 250bps cut in March, and most likely in April as well, the pace of interest rate cuts could be moderated starting from the June meeting.

* The Real Sector Confidence Index (RSCI) further improved to a level of 102.4, up from 100.9 in February, while the seasonally adjusted RSCI rose slightly to 102.8, up from 102.6. Additionally, the Capacity Utilization Rate (CUR) showed a modest change, with the unadjusted CUR edging down to 74.5% from 74.6%, while the adjusted CUR increased to 74.9% from 74.8% in February. Despite the increase observed in the unadjusted Real Sector Confidence Index (RSCI) in January, the leading indicators across the board pointed to a weakening on an m/m basis in the first month of the year. However, preliminary data for February signals a renewed recovery trend in economic activity. Our baseline scenario for this year suggests that after a decline in annual growth in the first quarter of 2025, activity will begin to recover from the second quarter onwards, with GDP growth for the year to be 2.6%. However, preliminary data received so far indicates that the weakening in growth we anticipated in the first quarter may not occur to the extent we had predicted. At the same time, it suggests that the trajectory of growth dynamics continues to pose a risk for the disinflationary process.

* Based on our calculations upon the CBT’s analytical balance sheet, we estimate that during the week of February 14 – 21, the net international reserves slumped by USD5.8bn to USD72.3bn and the gross FX reserves slid by USD3.2bn to USD170.1bn. We anticipate that the official reserve data, set to be released on Thursday at 14:30 local time, will likely reflect a similar trend in line with our calculations.