Macro and Politics

*The CBT will release the June Real Sector Confidence Index and Capacity Utilization Rate @ 10:00 local time today. The unadjusted Real Sector Confidence Index (RSCI) rose by 2.7 points in May to 103.3, reaching its highest level since February. The seasonally adjusted index also increased by 2.4 points to 101, moving back above the critical 100 threshold. Please recall that the seasonally adjusted RSCI had declined by 1.4 points to 98.6 in April, falling below the 100-threshold for the first time since July. A breakdown of the diffusion indices reveals that, in May, assessments related to the general business outlook, export orders for the next three months, total employment expectations for the next three months, current total orders, production expectations for the next three months, total orders over the past three months, and fixed investment spending all contributed positively to the headline index. In contrast, evaluations regarding current finished goods inventories exerted a downward impact. On the capacity side, the Capacity Utilization Rate (CUR) increased to 74.2% in May from 73.8%, while the seasonally adjusted CUR edged up to 74.1% from 74.0%. The May data point to a short-term recovery tendency in manufacturing activity following the pronounced weakening observed in April. Nevertheless, we do not believe that the pressures stemming from elevated global uncertainty, persistently high energy costs, and tight domestic financial conditions on economic activity have fully dissipated. Accordingly, we interpret the improvement in May not as the beginning of a strong and sustained acceleration, but rather as a limited normalization following the sharp deterioration seen in April. We continue to assess that downside risks to the medium-term growth outlook remain in place. We maintain our 2026 year-end growth forecast at 3.2%.

* Following the record-high USD856.9mn foreign equity outflow recorded in the previous week, foreign selling pressure moderated significantly during the June 5 – 12 period with net equity sales easing to USD117.8mn, while the bond market excluding repo transactions registered a net foreign inflow of USD428.8mn. During the same period, residents’ FX deposits (excluding gold and adjusted for EUR/USD parity effect) posted a modest increase of USD197mn, while their total FX deposits (including gold, adjusted for price effect), increased by a mere USD266mn during the June 5 – 12 period. According to the CBT’s official reserve data, gross FX reserves declined sharply by USD7.4bn to USD152.1bn during the June 5 – 12 week, while net FX reserves fell by USD1.8bn to USD45.0bn. Over the same period, the swap stock decreased by USD1.4bn to USD16.0bn, while net reserves excluding swaps deteriorated by USD344mn, falling to USD29.0bn.