Macro and Politics

*The Monetary Policy Committee (MPC) decision will be announced today @ 14:00 local time. We do not expect the CBT to make any changes to its monetary policy framework at today’s meeting. Accordingly, we expect the policy rate to remain unchanged at 37%, while the lower and upper bounds of the interest rate corridor are likely to be maintained at 35.5% and 40%, respectively. We also do not anticipate any meaningful near-term easing in the average funding cost (WAFC), which continues to hover around 40%, effectively anchored to the upper bound of the corridor. Should uncertainty recede, we expect the CBT to gradually resume one-week repo auctions, paving the way for market rates to converge toward the policy rate of 37% over time. In our view, such a normalization process could establish the conditions for a gradual easing cycle later in the year, potentially creating room for rate cuts toward the final quarter. Our year-end policy rate forecast stands at 35%.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the May 26 – June 5 period at 14:30 local time today. Based on our calculations derived from the CBT’s analytical balance sheet, we estimate that during the May 26 – June 5 period, gross FX reserves increased USD855mn to USD160.2bn, while net FX reserves climbed by USD1.9bn to USD47.6bn. We expect today’s official data to point to a reserve buildup broadly in line with our calculations. To recall the previous week’s data: Foreign investors were net sellers of USD91.1mn in the equity market during the shortened May 22 – 26 period, while the bond market (excluding repo transactions) saw a net foreign outflow of USD134.5mn. Meanwhile, foreigners’ share in the total government bond stock remained unchanged at 5.6% over the same period. During the same period, residents’ FX deposits (excluding gold, EUR/USD parity effect adjusted) increased by USD1.2bn, while their total FX deposits (including gold, price-adjusted) rose by USD1.5bn in the week of May 22 – 26. According to the CBT’s official reserve data, gross FX reserves fell by USD950mn to USD159.2bn during the week of May 22 – 26, while net FX reserves declined by USD1.2bn to USD45.7bn. Over the same period, the swap stock increased by USD932mn to USD19.2bn, while the net reserves excluding swaps retreated by USD2.1bn to USD26.5bn.