Macro and Politics

*The Monetary Policy Committee (MPC) decision will be announced today @ 14:00 local time. While we expect the MPC to deliver a 100bps rate cut, we do not rule out the possibility of a 150bps rate cut. However, we do not believe the current inflation backdrop provides sufficient room for a 200bps or larger adjustment. The downside surprise in November headline inflation has clearly pushed market expectations higher, with the survey median shifting to 150bps and some participants even calling for a 200bps cut. That said, we do not view the 0.9% November CPI print as a data point that should be interpreted solely through headline dynamics. Underlying trend inflation has remained stuck around 2.1% m/m for several months, offering no support for accelerating the easing cycle. Moreover, in a period where uncertainties over the minimum wage adjustment, tax changes and administered-price revisions remain elevated, a larger step could be difficult to reconcile with the CBT’s prudent stance. For these reasons, although the benign headline surprise keeps a 150bps cut technically on the table, the persistence in core indicators and short-term pricing risks justify maintaining 100bps as our base case. We therefore do not expect a 200bps or larger reduction at this stage. Accordingly, we expect the policy rate to end 2025 at 38.5% and to decline further to 29.5% by end-2026.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of November 28 – December 5 @ 14:30 local time. Based on our calculations using the CBT’s analytical balance sheet, we estimate that during the week of November 28 – December 5, the CBT’s gross FX reserves increased by USD3.3bn to USD186.6bn, while the net international reserves soared by USD5.8bn to USD77.8bn. To recall the previous week’s data: In the week of November 21 – 28, foreign investors posted a mere USD9.2mn outflow from the equity market, while recording a sizeable USD594.5mn net purchase in the bond market (excluding repo transactions).  As a result, the foreign share in the total government bond stock rose from 6.9% to 7.2%, surpassing the 7% threshold for the first time since the week of 21 March. Moreover, during the same period, the residents’ FX deposits edged up by USD102mn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) increased by USD320mn. In terms of official reserves, the CBT’s gross FX reserves climbed by USD2.6bn to USD183.3bn and net international reserves rose by USD2.7bn to USD72bn.

* The sequential (the seasonally and calendar adjusted monthly figure) industrial production (IP) contracted by 0.8% m/m, while calendar-adjusted IP increased by 2.2% y/y in October. Recall that the sequential IP contracted by 2.2% m/m, while calendar-adjusted IP increased by 2.9% y/y back in September. A breakdown of the October data shows that the manufacture of other transport equipment – including defense-related production – continued to record strong annual gains, rising by 22.3% y/y. However, the pace has moderated significantly relative to the exceptionally elevated readings above 50% y/y seen during June–August. On a monthly basis, the category fell by 0.6%, marking the fourth consecutive decline. Weakness persisted across durable and nondurable consumer goods, with output contracting by 9% and 5.7% y/y, respectively, while monthly performances remained subdued. In capital goods, the annual trend stayed positive at 12.2% y/y, yet the 2.3% m/m drop extended the sequential contraction into a fourth month, indicating a fading momentum in investment-related production. Overall, annual industrial growth continues to display pronounced sectoral divergence. Gains remain concentrated in select segments—most notably construction-linked industries and defense manufacturing—while volatility in high-technology production persists. Consequently, the data do not suggest a broad-based recovery across the real sector.