Macro and Politics

* We expect the Monetary Policy Committee (MPC) to cut the policy rate further by 250bps to 42.5% at today’s meeting, in line with the market consensus according to the survey conducted by ForInvest. The decision will be announced at 14:00 local time. It is important to note that the retroactive reduction which was recently applied to a portion of the medical examination copayment increases resulted in a downward revision to February inflation forecasts, in line with our expectations. Hence, we believe the amendment to the Healthcare Implementation Communiqué will further strengthen the possibility of a 250bps rate cut in March. Our base case scenario suggests that rate cuts will continue by 250bps in both March and April, after which the pace of cuts may slow starting from the June meeting. We expect interest rate cuts to persist throughout 2025, with the policy rate projected to reach 30% by the end of the year.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of February 21 – 28 @ 14:30 local time. Based on our calculations upon the CBT’s analytical balance sheet, we estimate that during the week of February 21 – 28, the net international reserves dropped further by USD3.6bn to USD68.3bn and the gross FX reserves slumped by USD4.6bn to USD165.6bn. We anticipate that today’s official reserve data will likely reflect a similar trend in line with our calculations. To recall the data from the previous week: The equity and the bond market (excluding repo transactions) experienced a net foreign inflow of USD74mn and USD180mn, respectively, in the week of February 14 – 21. On an annual basis, the equity market recorded a cumulative foreign outflow of USD2.5bn, whereas the bond market (excluding repo transactions) saw a cumulative foreign inflow of USD17.9bn. In ytd terms, there has been a foreign inflow of USD330mn and USD2.1bn to the equity and the bond market (excluding repo transactions), respectively. During the week of February 14 – 21, the resident’s FX deposits experienced the sharpest increase since August 2023 as the FX deposits surged by USD3.3bn (gold accounts excluded, EUR/USD parity adjusted), while total FX deposits (including gold, price adjusted) saw a palpable increase of USD3.7bn. The CBT’s gross FX reserves dropped by USD3.2bn to USD170bn, while net international reserves slid by USD6.2bn to USD72bn. The CBT’s net reserves excluding swaps, moreover, decreased by USD5.7bn to USD65.7bn.