Macro and Politics

*The CBT will release the February Real Sector Confidence Index and Capacity Utilization Rate @ 10:00 local time today. The unadjusted Real Sector Confidence Index (RSCI) increased to 101.6 in January from 100.8, while the seasonally adjusted index edged down to 103.0 from 103.7. Despite the monthly moderation in the adjusted series, the index remains comfortably above the 100 threshold, signaling that firms’ overall assessment of economic activity continues to reflect an optimistic bias. A closer look at the diffusion indices underlying the survey reveals that fixed capital investment spending, total orders over the past three months, the general business outlook, current finished goods inventories, and expectations for total employment over the next three months exerted upward pressure on the headline index in January. By contrast, assessments regarding export orders and production expectations for the next three months, as well as current total orders, weighed on the index. Morever, capacity utilization declined modestly to 74.1% from 74.4% in unadjusted terms, while the seasonally adjusted rate increased slightly to 74.4% from 74.2%. The positive contribution from fixed investment spending, employment expectations, and the general outlook suggests that domestic demand and investment dynamics have not experienced a pronounced weakening despite tight monetary conditions. Meanwhile, the relative softness in export orders and production expectations indicates that growth remains primarily driven by domestic demand components. Overall, the latest data point to a resilient pace of economic activity in the first quarter, with growth dynamics holding firm despite restrictive financial conditions. We expect GDP growth to reach 4% in 2026, with upside risks attached, following a 3.8% growth in 2025.

* The consumer confidence index rose to 85.7 in February from 83.7 in the previous month. Please recall that the index had averaged 83.9 in 3Q25 and remained broadly unchanged at 84 on average in 4Q25, pointing to a prolonged period of subdued sentiment toward year-end. A breakdown of the February data shows that the index tracking financial situation of household at present increased from 68.2 to 71.3, while expectations for financial situation expectation of household over the next 12 months strengthened more visibly, rising from 83.3 to 86.8. By contrast, general economic situation expectation over the next 12 months edged down marginally, from 81.5 to 81.4. Importantly for the domestic demand outlook, the index measuring assessment on spending money on durable goods over the next 12 months climbed further, from 101.9 to 103.2. Overall, the February uptick in consumer confidence suggests a gradual improvement in household expectations, which is likely to lend support to the domestic demand outlook. At the same time, the renewed increase in assessment on spending money on durable goods over the next 12 months indicates that demand-driven inflationary pressures have not yet fully dissipated.

* Foreign investors recorded net purchases of USD322.2mn in equities and USD1.3bn in government bonds (excluding repos) during the week of February 6 – 13. Over the same period, the foreign share in the total government bond stock increased from 9% to 9.2%, marking the highest level since February 2020. Equity inflows thus extended to an eleventh consecutive week, bringing cumulative foreign purchases over this eleven-week period to USD2.8bn. In the local bond market, foreign participation has exhibited a more sustained and increasingly visible recovery since late October. From the week of October 31 - when inflows began to gain clearer momentum - cumulative foreign bond purchases have reached USD8.1bn. On a year-to-date basis, foreign investors have accumulated USD1.9bn in equities and USD5.8bn in local bonds (excluding repos). Moreover, during the week of February 6 – 13, the residents’ FX deposits retreated by USD1.4bn (excluding gold, EUR/USD parity effect adjusted), while their total FX deposits (including gold, price adjusted) slid by USD1bn. In terms of official reserves, the CBT’s gross FX reserves increased by USD4.3bn to USD211.9bn, net international reserves rose by USD4.6bn to USD95.7bn and net reserves excluding swaps climbed by USD3.8bn to USD81.4bn.