Macro and Politics

*The CBT will release April Balance of Payment figures today @10:00 local time. We expect the current account balance to post a deficit of around USD4.2bn in April, compared to the market median forecast of USD5.6bn. We estimate that the balance-of-payments-defined foreign trade deficit narrowed to USD5.2bn during the month, while the services balance surplus remained robust at approximately USD3.5bn. Our year-end current account deficit forecast stands at USD45bn, corresponding to 2.6% of GDP. That said, we continue to see upside risks to our forecast, particularly in light of persistently elevated global energy costs.

* The CBT will release the results of the Survey of Market Participants for June @ 10:00 local time. According to the CBT’s latest Market Participants Survey for May 2026, respondents revised their year-end 2026 CPI inflation expectation upward to 28.9% from 27.5%, while the year-end 2027 forecast increased to 21.1% from 20.1%. Inflation expectations for the next 12 months rose to 23.8% from 23.4%, while the 24-month-ahead expectation edged up to 18.4% from 18.0%. The five-year-ahead inflation expectation remained unchanged at 11.9%. Following the sharp 4.2% m/m CPI increase recorded in April, which significantly exceeded expectations, monthly inflation moderated to 1.7% in May. We expect this disinflationary trend in monthly price dynamics to extend into June and estimate monthly CPI inflation at around 1%, potentially even slightly below that level. In light of the recent moderation in monthly inflation outcomes, we believe the upward adjustment in year-end inflation expectations may lose some momentum in the June results.

* The Monetary Policy Committee (MPC) left the policy rate unchanged at 37%, in line with both our expectation and market consensus, while maintaining the interest rate corridor at 35.5% –4 0%. The MPC statement noted a modest improvement in the underlying inflation trend in May, while highlighting continued weakness in economic activity and domestic demand. The Committee also reiterated that the implications of geopolitical developments for the inflation outlook are being closely monitored through cost, activity, and expectations channels. Despite funding continuing through the upper bound of the corridor at 40%, keeping the policy rate unchanged at 37% limits further upward pressure on market rates. We believe the MPC's decision to preserve the current policy mix may have been influenced by the recent moderation in geopolitical uncertainties, the relative improvement in reserve dynamics, the continued moderation in food prices, and the potentially adverse impact of supply shocks on economic activity. We do not expect a meaningful easing in the weighted average cost of funding (WACF), which continues to hover around 40%. Should uncertainty recede, a gradual return to one-week repo funding could allow market rates to converge towards the policy rate over time, paving the way for a gradual easing cycle towards the final quarter of the year. Our year-end policy rate forecast remains at 35%.

* Foreign investors were net sellers of USD856.9mn in the equity market during the May 26 – June 5 period, marking the largest weekly foreign equity outflow on record. The bond market, excluding repo transactions, also registered a net foreign outflow of USD279.6mn, while foreigners’ share in the total bond stock edged down from 5.6% to 5.5%. During the same period, residents’ FX deposits (excluding gold and adjusted for EUR/USD parity effects) declined by USD1.3bn, while their total FX deposits, including gold and adjusted for price effects, fell by USD1.7bn during the May 26 – June 5 period. In terms of official reserves, the CBT’s gross FX reserves increased modestly by USD193mn to USD159.5bn during the May 26 – June 5 period, while net FX reserves rose by USD1.0bn to USD46.8bn. Over the same period, the swap stock declined by USD1.8bn to USD17.4bn, while net reserves excluding swaps improved by USD2.8bn to USD29.4bn.