Macro and Politics

* The Monetary Policy Committee (MPC) lowered the policy rate by 100bps, from 40.5% to 39.5%. Our baseline scenario had assumed a 150bps cut, though we had not ruled out a smaller adjustment. A closer look at the details reveals that the October MPC statement adopted a visibly more cautious tone compared to September, suggesting rising upside risks to our year-end policy rate forecast of 37.5%. Against this backdrop, another 100bps cut in December appears plausible, which would bring the policy rate to 38.5% by year-end. Yet, the October and November CPI prints will be key in shaping policy expectations ahead of the final MPC meeting on 11 December. Following the latest decision, markets will closely watch the October CPI data to be released on Monday, 3 November. We estimate October CPI to rise by 2.71% m/m, which would trim the annual rate slightly from 33.3% to 33.1%. We expect monthly inflation to ease markedly in the last two months—around 1.5% in November and 1% in December—mainly due to seasonality. Consequently, the probability of headline CPI ending the year below 30% has largely diminished. Accordingly, we have revised our 2025 year-end CPI forecast upward from 29.7% to 31.5%, while maintaining our 2026 CPI and policy rate forecasts at 23% and 28%, respectively. Following October inflation data, attention will turn to the Inflation Report presentation on 7 November, where we expect an upward revision to the CBT’s year-end inflation forecast band (25% – 29%). Whether recent trends feed into the 2026 forecast range of 13% – 16% will be crucial for next year’s monetary policy outlook.

* There was a net foreign outflow from the equity market in the week of 10 – 17 October, amounting to USD178mn, while the bond market (excluding repo transactions) experienced a net foreign inflow of USD151.1mn. Moreover, during the same period, the residents’ FX deposits increased by USD1.2bn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) climbed by USD2.3bn. In terms of official reserves, the CBT’s gross FX reserves surged notably by USD8.7bn to USD198.5bn, while net international reserves increased by a mere USD398mn to USD79.5bn. Moreover, net reserves excluding swaps climbed by USD1.5bn to USD63.2bn.

* The consumer confidence index dropped barely from 83.9 to 83.6 level in October. It is important to underscore that the consumer confidence index — which ranges from 0 to 200 — signals pessimism when it falls below 100, and optimism when it exceeds that threshold. A breakdown of the October consumer confidence index reveals the following: The sub-index reflecting the financial situation of household at present decreased merely from 67.8 level to 67.7, while the sub-index measuring financial situation expectation of household over the next 12 months increased marginally from 84 to 84.2. Moreover, general economic situation expectation over the next 12 months rose from 78 to 78.6, while the sub-index tracking assessment on spending money on durable goods over the next 12 months — a key indicator of domestic demand — dropped from 105.7 to 104 level in October. The Consumer Confidence Index, which has remained broadly flat within the 84–85 range since April and continues to stand below the 100 – threshold, indicates that the prevailing pessimism in consumer sentiment persists.