Macro and Politics

* The CBT will release the October Sectoral Inflation Expectations (SIE) Survey @ 10:00 local time. According to the September Sectoral Inflation Expectations Survey, households’ 12-month-ahead inflation expectations edged up by 0.02 percentage points to 45.60%, while real sector expectations declined by 0.30 percentage points to 32.50%. Market participants’ expectations remained unchanged at 23.7%. Meanwhile, the share of households anticipating a decline in inflation over the next 12 months fell by 0.60 percentage points to 16.25%. The October Survey of Market Participants revealed broadly persistent inflation expectations, with the year-end 2026 CPI forecast holding steady at 29.6%, while the year-end 2027 forecast was revised upward to 23.3% from 22.7%. The 12-month-ahead inflation expectation increased to 23.9% from 23.7%, whereas the 24-month-ahead expectation eased to 17.9% from 18.3%. Longer-term expectations also edged higher, with the five-year-ahead forecast rising to 12.2% from 12.1%. We expect the October Sectoral Inflation Expectations Survey to indicate continued stickiness in real sector and household inflation expectations, mirroring the limited improvement observed in market participants’ expectations over recent months.

* The CBT’s Monetary Policy Committee (MPC) reduced the policy rate by 100bp to 36% at its October meeting, in line with our house forecast and the market median expectation. The MPC statement adopted a more favorable assessment of underlying inflation compared with September. The Committee maintained its assessment of subdued domestic demand, while reiterating that geopolitical tensions and elevated energy prices continue to pose upside risks to the inflation outlook. Forward guidance remained broadly unchanged, although the MPC explicitly emphasized that both the magnitude and timing of future rate adjustments would be determined on a meeting-by-meeting basis, with a cautious approach. We expect October CPI inflation of 2.4% m/m, bringing annual inflation down to 29.5% from 29.7%. Our year-end CPI inflation forecast stands at 29.2%. Looking ahead, we expect another 100bp rate cut at the December 10 MPC meeting, bringing the policy rate to 35% by year-end. However, we do not view the October and December cuts as the beginning of an uninterrupted easing cycle. We believe that minimum wage adjustments and increases in administered and regulated prices at the start of 2027 could intensify upside inflation risks in 1Q27, narrowing the scope for further monetary easing. Accordingly, we see a high likelihood of the MPC pausing rate cuts in the early months of 2027.

* Foreign investors were net sellers of USD88.8mn in equities and USD44.4mn in bonds, excluding repo transactions, during the October 9–16 week. Equity outflows continued for a third successive week, bringing cumulative net foreign sales over the period to USD527mn. In the bond market, foreign investors shifted back to net selling following purchases of USD451.1mn in the preceding week, while foreigners’ share in the total bond stock declined to 6.5% from 6.6%. Moreoever, residents’ FX deposits (excluding gold and adjusted for the EUR/USD parity effect) registered a slight increase of USD89mn during the October 9–16 week, while their total FX deposits (including gold, adjusted for the price effect) fell by USD848mn. In terms of official reserves: The CBT’s gross reserves declined by USD2.5bn to USD169.1bn during the October 9–16 week, while net reserves fell by USD6.2bn to USD51.4bn. The swap stock decreased by USD1.4bn to USD12.2bn, while net reserves excluding swaps contracted by USD4.9bn to USD39.3bn.