• GDP growth is now expected at 2.4% in 2025 and 2.2% in 2026
• The 2025 upgrade was due to stronger consumption growth and inventory accumulation
• Strong domestic demand has led to higher imports, thus narrowing projected CA surpluses
• No change in inflation projection was provided, but wage growth was upgraded due to a tight labour market
• Fiscal forecasts remain unchanged, with the general government deficit expected at 1.9% of GDP in both 2025 and 2026
• GDP growth risks are primarily to the downside, related to disruptions in global trade and supply chains

The finance ministry upgraded its GDP growth projection to 2.4% in 2025 (up 0.3pps from the previous forecast), according to its latest macroeconomic forecast. The upward revision is mostly due to a stronger expected impact from inventory accumulation (+0.9pps against +0.7pps), as well as due to stronger consumption. Household consumption is now expected to rise by 3.1% in 2025 (up 0.1pps), while public consumption should rise by 2.1% (up 0.2pps). The GDP growth forecast for 2026 was upgraded slightly as well, as GDP growth is now expected at 2.2%, stronger by 0.2pps. The main upward push should come from net exports, whose contribution is still expected to be negative, but less so, at -0.3pps against -0.5pps in the previous forecast.

Stronger domestic demand growth should push imports upwards, which is why the new forecast suggests lower CA surpluses, at 0.8% of GDP in 2025 (down 0.4pps) and 0.3% of GDP in 2026 (down 0.2pps). The revision also reflects the slightly higher nominal GDP growth, yet demand effects will be stronger. However, the finance ministry doesn't expect a major acceleration in inflation because of demand, and annual average inflation projections remain unchanged, at 2.4% in 2025 and 2.3% in 2026. End-year inflation is also expected at similar levels, at 2.2% y/y at end-2025 (down 0.1pps) and 2.6% y/y at end-2026 (no change).

Labour market expectations remain largely stable, though the LFS unemployment rate is expected to be slightly higher than before, though still low, at 2.8% in 2025 and 2.7% in 2026 (up 0.1pps in both years). The main argument for low unemployment is that the labour market remains tight, and skilled labour shortages are persisting. The latter is also why wage growth projections were upgraded, as nominal wages are now expected to rise by 6.9% in 2025 (up 0.3pps) and 5.8% in 2026 (up 0.5pps). This is well above the level that the CNB would tolerate, and real wage growth will continue to be above GDP growth, leading to productivity loss.

No change was made in fiscal projections, as the general government deficit is projected at 1.9% of GDP in both 2025 and 2026. While we expect that the 2025 projection will be met, we are not that confident about the 2026 one, given that the 2026 budget bill has some weaknesses. Yet, this is the framework that the new government will use as well, so no major change there. General government debt is expected at 43.9% of GDP at end-2025, down 0.3pps, mostly due to a higher nominal GDP projection. However, it will expand to 45.3% of GDP at end-2026, primarily due to stronger debt amortisation and no fiscal consolidation.

Risks to economic growth are perceived on the downside, with disruption to global trade and supply chains being the primary reason. Another potential risk is a shift in economic policy in the EU, particularly in Germany. We agree with that assessment, and given recent developments in Germany, the odds are that the German economy is about to enter a difficult period. As Czech manufacturers are closely integrated with German supply chains, there will be inevitably a spillover if things in Germany do not improve.

Click here for our comprehensive database of macro forecasts.

• Electricity consumption rose by 5.7% y/y in October, and we suspect a part of it was because of heating
• Unadjusted natural gas consumption was up by 9.8% y/y, while temperature-adjusted consumption rose by only 1% y/y
• In January-October, power consumption rose by 2.3% y/y, while natural gas consumption was higher by 2.7% y/y

Energy consumption reported a modest increase in October, according to figures from the energy regulator (ERU) on power and natural gas consumption. Net power consumption, i.e. excluding transmission losses and energy used for other generation, rose by 5.7% y/y in October, its strongest monthly increase since February. It doesn't necessarily imply a stronger business activity, however, as October was colder than usual, and part of this could have been used for heating. As electricity-related technologies have become cheaper, there has been a shift towards using electricity rather than natural gas for heating, especially in smaller inhabited areas. Unfortunately, breakdown by consumer type is available only quarterly, so it will be some time before we can confirm our suspicion.

Data Download

Meanwhile, natural gas consumption adjusted for temperature changes was up 1% y/y in October, ending two months of decline. It goes in line with our speculation about more energy used for heating, as unadjusted natural gas consumption rose by 9.8% y/y. Here, we believe that the bigger part of the increase was due to households rather than business.

Data Download

In cumulative terms, net electricity consumption rose by 2.3% y/y in January-October, which was modest, but still better than a year ago, when consumption fell by 1.3% y/y. Thus, there is certainly some economic recovery, though not as extensive as many hoped for. The same goes for temperature-adjusted energy consumption, which rose by 2.7% y/y in January-October. As with electricity, it was decent, but not great.

• Civil engineering works eased in September, while building construction remained stable
• Residential building permits reported a second month of growth, even if marginal, not seen since 2022
• Employment growth keeps gaining pace, nominal wages rose by 6.4% y/y in September
• The current level of residential construction is still far from meeting demand, so the odds are housing prices will remain high

Construction activity eased its growth to 12.8% y/y (wda) in September, slowing from 17% y/y in August, according to figures from the statistical office. The slower increase was almost entirely due to civil engineering works, where activity rose by 15.9% y/y in September, slower by 11.4pps m/m. The latter comes despite a low base, and the decline was as much a 4.7% m/m (sa). This is mostly due to infrastructure projects wrapping up before the general election in October, a lot of them being aimed at motorway construction and flood repairs.

Data Download

On a positive note, the number of completed buildings jumped by 69.6% y/y in September, bringing the cumulative increase to 5% y/y in January-September. Completed multi-dwelling buildings were higher by 52.2% y/y in September, but their number was still lower by 10.7% y/y in January-September. The latter has been one of the main issues in the real estate market, since demand growth has not been met by a boost in supply. This goes for new projects as well, as the number of multi-dwelling buildings started fell by 37.8% y/y in September and by 16.4% y/y in January-September. Thus, while the CNB hopes that housing price growth will peak out soon, construction data suggests this might not be the case, as supply shortages are likely to persist.

The number of building permits fell by 6.8% y/y in September, but it was mostly due to engineering works, where they fell by 15.4% y/y. Meanwhile, residential building permits rise by 0.7% y/y, posting a second consecutive month of growth. Still, that growth was marginal, as residential building permits were up 0.1% y/y in August. Even then, the last time residential building permits rose for more than one month in a row was in 2022, so it is an improvement, even if a negligible one. Given how the average period of construction is a couple of years, however, the odds are that we will not see a noticeable relief in the housing market before late 2026 or early 2027.

Employment in construction rose by 1% y/y in September, seeing growth throughout the entire Q3. In cumulative terms, employment was still down by 0.1% y/y in January-September, but we expect the number will improve before the year is over. Nominal wages picked up growth as well, rising by 6.4% y/y in September, bringing cumulative growth to 5.8% y/y in January-September. This will be likely slower than what is seen in the service sector, but it is still robust.

All in all, we expect that civil engineering works will keep easing activity, which will drag overall performance. Yet, all eyes will be on residential construction, which continues to lag. While there will be some improvement in the near future, we doubt it will be enough to meet current demand levels, which means housing price growth will ease, but not disappear.

• Markets expected a trade surplus of CZK 23.5bn
• The trade surplus reached CZK 170.8bn in January-September, down 5.4% y/y
• Motor vehicle trade was the main upward push in September and January-September
• However, redirected Chinese exports to Europe pushed down trade surpluses in cumulative terms
• Trade with Russia reported a surplus for the first time since 2020, due to the end of oil imports from Russia
• Risks remain on the downside, mostly due to uncertainty about global trade

The external trade surplus reached CZK 29.7bn in September, up 27.7% y/y, according to figures from the statistical office. The print was slightly stronger than anticipated, as markets anticipated a surplus of CZK 23.5bn. In cumulative terms, the trade surplus reached CZK 170.8bn, lower by 5.4% y/y. Meanwhile, the 12m-rolling trade surplus added up to CZK 210.7bn, the second-strongest in the past 6 months. In seasonally adjusted terms, the trade surplus reached CZK 25.3bn in September, the strongest in the past 13 months.

Data Download

The improvement in the trade balance in September was due primarily to motor vehicle exports, which rose by 6.2% y/y, as well as various manufactured goods, up 3.3% y/y. On the other end, there was a deterioration in energy trade, which reflects somewhat higher oil prices, as well as trade with manufactured articles, which is mostly due to stronger Chinese imports. Other than that, there wasn't much of a variation. The situation was similar in cumulative terms, as motor vehicle trade was the main upward push. However, as Chinese exports were redirected from the US to Europe, this almost completely negated the gain from automotive exports. Apart from that, there was a more noticeable deterioration in food trade, as well as crude materials, whose prices have been rising due to higher transportation expenses. Trade with parts and components improved, but it was held back by chemicals and non-classified commodities.

By region, trade consistently improved with the EU, most of all Germany. Meanwhile, trade with China showed stronger deficits because of the reasons listed above, even though the impact has softened recently. There was also a noticeable improvement in the trade balance with Russia, which still shows a deficit, but a surplus was reported in September, for the first time since 2020. This one is here to stay, as the main reason is the end of oil imports from Russia in April. As a reminder, the Czech government a financed an extension of the TAL oil pipeline that goes through Italy, and it has an alternative source of pipeline oil now. It couldn't have come at a better time, either, after the US imposed sanctions on Russian oil companies. Thus, unlikely Slovakia and Hungary, the Czech Republic faces zero political risk. On the downside, the Soviet-era Druzhba pipeline flows in only one direction, which means the Czech Republic cannot export oil to Slovakia and Hungary, unless the pipeline is completely reworked, which will take plenty of time and money.

Exports recovered, as they rose by 3.7% y/y in September after falling by 6.4% y/y in August. The main reason was machinery & transport equipment, where exports rose by 3.6% y/y in September after falling by 7.6% y/y in August. The automotive sector had a decent contribution, with its exports rising by 6.2% y/y in September, recovering from a 3.1% y/y fall in August. There was also some improvement in exports of parts & components, as well as various manufactured articles, but it was much smaller than that of machinery & motor vehicles. Meanwhile, imports rose by 2.3% y/y in September after falling by 4.6% y/y in August. The main reason was stronger imports of machinery & equipment, followed by a stronger value of oil & gas imports. The latter reflects some base effect, as prices were much lower a year ago, and they spiked because of recent geopolitical tension.

All in all, we are seeing some recovery, though it remains unclear how long it will last. While we are seeing some positive news from the manufacturing sector, volatility is still high. On the positive side, it appears that the exchange rate has started to stabilise, so we will no longer see a deterioration through a stronger REER. On the other hand, external demand remains weak, and this will inevitably reflect on export growth. Thus, the odds are that trade surpluses will continue to narrow, but possibly at a softer pace. China remains a wild card, though it might be willing to tighten its exports to the EU, which may provide a relief. The downside is that this will be through raw materials and components that the EU needs, which may hit the Czech manufacturing sector, itself heavily export-oriented. Thus, risks remain on the downside, though we don't expect a sharp fall in trade surpluses for now.

• Markets expected a decline of 0.3% y/y
• Manufacturing output recovered, up 1.7% y/y in September
• While the automotive sector worsened, as expected, machinery & equipment and electrical made up for it
• Yet, we feel this could be a temporary improvement, given how much activity has been swinging
• New orders improved as well, but the manufacturing PMI for October implies a new drop is to be expected
• Employment kept falling, even if at a slower pace, while nominal wages picked up growth, up 6.7% y/y in September
• We consider the industrial outlook as still bleak, and downside risks rising; global trade uncertainty is the main reason

Industrial output rose by 0.4% y/y (wda) in September, swinging back from a 1.3% y/y fall in August, according to figures from the statistical office. The print was stronger than market expectations, which projected a decline of 0.3% y/y. Output also recovered in month-on-month terms, rising by 1.1% m/m (sa) in September, after a 1.1% m/m drop in August. Manufacturing was the sector to push headline production upwards, as it rose by 1.7% y/y in September, and it increased by 2.3% m/m (sa).

Data Download

As expected, the automotive sector worsened, and its output fell by 2.9% y/y in September, faster by 0.7pps m/m. This is largely due to production interruptions in Hyundai, the argument being weak external demand. Other sectors that did not do that well were power generation, where production fell by 9.2% y/y in September after rising by 5.8% y/y in August. Pharmaceutical production deteriorated as well, reporting a fall of 0.4% y/y in September after rising by 7.3% y/y in August. Yet, all this was made up by machinery & equipment and electrical products, as both sectors recovered from a noticeable loss in August to a decent increase in September. Computer & electronics also had an upward contribution to manufacturing growth, but it was mostly a softer decline, from 15.5% y/y in August to 4.5% y/y in September. Manufacturing of transport equipment other than motor vehicles was also on the rise, seeing a 15.3% y/y jump in September.

The main issue with this is that we don't quite know how long it will last. Industrial sentiment has been on the rise, and the manufacturing PMI was at a steady level in September, until it sharply deteriorated in October. New orders improved again, rising by 4.4% y/y in September after a 5.1% y/y fall in August. Export orders had the biggest contribution, with a 5.5% y/y increase in September, after a fall of 5.8% y/y in August. By sector, the automotive industry led with new orders, followed by machinery & equipment, electrical, and parts & components. Computer & electronics also contributed, as well as basic metals. On the other end, transport equipment other than motor vehicles saw a major drop in new orders, so it appears the spike seen in September will not continue for long. Our point is that new orders have been quite volatile, and judging from the latest manufacturing PMI print, they will likely deteriorate noticeably in October. Mind that this could be sentiment-related, as the issue with China's export restrictions on rare earths may have impacted orders. Since the issue appears to have been averted, at least for a while, we may see a better performance in November and December. Yet, industrial sales remained unimpressive, falling by 0.8% y/y in September, their third consecutive decline.

Given how demand remains weak, employment decline continued, and it fell by 1.6% y/y in September. While it was the softest rate of decline in the past 30 months, job shedding has been going on since mid-2022, without any interruption. Nominal wages rose by 6.7% y/y in September, and there was some upward revision to prints in July (up 6.9% y/y) and August (up 5% y/y). Unfortunately, the statistical office doesn't provide a series for this metric, so we don't know whether past wage growth was revised as well. In any case, nominal wages rose by 6.2% y/y in Q3, up from 4.8% y/y in Q2, their fastest growth in the past 4 quarters. Furthermore, wages in industry rose by 5.6% in January-October, which is likely slower than the national average, but still a sizeable growth rate. We attribute this to persisting shortages of skilled labour. Job shedding has been mostly through low-skilled positions, as well as through not filling in voluntary departures (like retirement, for example). Yet, this is so far industrial producers can afford to go, as they have no guarantee they will be able to find skilled labour if they need to scale up. Automation has been in progress, but it appears its implementation still fails to meet labour demand.

All in all, industrial activity has clearly weakened, reporting a growth of only 0.3% y/y in Q3 2025, the weakest this year so far. The same goes for manufacturing output, which rose by only 0.6% y/y in Q3, easing from a 1% y/y growth in Q2. As a result, the robust economic activity seen in Q1-Q3 so far is likely still driven by a combination of household consumption and inventory accumulation. The outlook for domestic industry remains bleak, and downside risks have increased, mostly related to uncertainty around global trade.The automotive sector will likely push down output in October and November as well, though as we have seen there are other sectors that could occasionaly mitigate that impact.

• There was barely a change in month-on-month terms; rates still decline by 44-48bps y/y
• Monthly mortgage payments keep falling by 4.3-4.7% y/y, in line with lower borrowing costs
• Housing availability remains low, as monthly payments can reach 55-59% of the median wage

New mortgage offer rates remained stable in November, according to the latest SwissLife Hypoindex survey. Rates on mortgages with 3-year and 5-year fixation periods fell by 1bp m/m, while rates on 1-year and 10-year fixation remained unchanged. There is still a noticeable decline in year-on-year terms, but it is mostly due to a high base. Thus, rates on fixation periods between 1 and 5 years fell between 44bps and 48bps. CNB data shows that the most preferred fixation period is currently 3 years, and this is where offer rates match the CNB's numbers. To illustrate, the loan rate on pure new mortgages, as reported by the CNB, was 4.59% in September, while the rate on mortgages with a 3-year fixation period was 4.57%. CNB data also confirm that new mortgage rates have stabilised, as the rate remained flat in Q3 2025.

Data Download

Monthly mortgage payments continued to fall in year-on-year terms, between 4.3% and 4.7% for fixation periods between 1 and 5 years. The only exception is mortgages with a 10-year fixation period, where monthly payments fell by 2.6% y/y. We should reiterate that the survey uses an outdated proxy for a standard mortgage, namely a value of CZK 3.5mn and a repayment period of 25 years. We don't have an issue with the repayment period, as the average is slightly above 26 years currently, according to more precise surveys. However, the average mortgage value is much higher in reality, currently being around CZK 4.3mn.

Thus, the calculations for mortgage affordability based on the Hypoindex survey are misleading. The data suggests that monthly mortgage payments were 38-41% of the gross average, and 44-48% of the median wage, depending on fixation period. However, if we use a more updated value for a standard mortgage, then payments become 46-50% of the gross average wage, and 55-59% of the median one, which is far more realistic.

At this point, it is becoming evident that the mortgage market will not reach its levels from 2020-2021, in terms of borrowing costs. Thus, mortgage rates are likely to remain higher than 5 years ago, by about 200-250bps. This should ease housing lending growth a bit, though data indicates that borrowing costs are not currently the main factor. Instead, stagnant housing supply appears to play a much stronger role, with demand showing no signs of easing. The CNB has an excellent analysis of the local real estate market, published in its Monetary Policy Report in August.

• This is part of the new government formation deal
• The number of deputy speakers was lowered from 6 to 4
• However, the new ruling coalition broke the agreement on distributing deputy speakers, not providing support the opposition's candidates

Tomio Okamura, leader of the nationalist SPD, became the new speaker of the Chamber of Deputies, the lower house of the Czech parliament. He won 107 out of 200 votes in the secret ballot, well ahead of Jan Bartosek (KDU-CSL), with 81. There were a couple of MPs who did not take part in the vote, which is why the votes do not add up to 200. It is the first time a prominent nationalist politician will head the lower house, though this was part of the government formation deal with ANO and the Motorists. In exchange, the SPD gave up its claim on the interior ministry, i.e. control over law enforcement, and will have three portfolios in the new cabinet.

The preceding debate was heated, and it took most of Wednesday (Nov 5). Even Tomio Okamura's older brother, Hayato Okamura, an MP for the KDU-CSL, warned against having his brother picked for such a prominent position. Yet, the debate did not change anything, and the new ruling coalition showed unity in its first vote. As a reminder, ANO, the SPD, and the Motorists have 108 out of 200 seats, and the result indicates that only a single MP did not take part in the vote.

As planned, the new coalition also changed the structure of the lower house leadership, reducing the number of deputy speakers from 6 to 4. It means that the Pirates-Greens group will be left without a representative in the lower house leadership, as the four seats will go to ANO, the Motorists, the ODS, and STAN. In fact, Patrik Nacher (ANO) and Jiri Bartak (Motorists) were immediately elected on Wednesday. Meanwhile, Jan Skopecek (ODS) and Olga Richterova (Pirates) did not get more than 50% of the vote, which means they will proceed to a second round of voting on Thursday (Nov 6). It means that the new ruling coalition broke its promise to distribute deputy speaker seats, as most of its MPs did not back the opposition's candidate. This is a sharp contrast to what the new opposition did, as they followed the preliminary agreement, but it turned against them. We believe this is a good indication that the new ruling coalition will play dirty, and it will exploit every chance it gets to obtain political power.

Okamura as Chamber speaker: hysteria instead of law. Military intelligence is not a pigeon coup (Lidove Noviny)

Okamura won [in lower house speaker election] (Mlada Fronta Dnes)

Okamura becomes new Chamber speaker, succeeds in secret ballot (Pravo)

Babis delays being named as prime minister. Because of Agrofert (Pravo)

Subsidy races start. Germany wants to support firms, Czech Republic - everyone (Hospodarske Noviny)

Delay of emission allowances for natural gas and petrol not to help (Mlada Fronta Dnes)

Toyota is changing Koliny. It is launching hybrids and prepares first European electric car (E15)

Scraps its trains and lays off thousands. Slovak manager from SPD to lead Czech Railways out of crisis (E15)

Gold for more than CZK 220bn is hidden in Czech underground. Mining would be profitable (Lidove Noviny)

A record fine for tax evasion (Hospodarske Noviny)

Question:

What were the corresponding increases last year?

The question was asked in relation to the following story: Motorway tolls to rise again in 2026

Answer:

Motorway tolls increased between 5% and 7.4% as of the beginning of 2025, with the average falling around 6%.

• Most increases are in the 3-5% range, the transport ministry expects additional revenue of CZK 9bn
• We estimate a marginal impact on CPI inflation, at +0.015pps

Motorway tolls will rise once more, as of the beginning of 2026, according to an announcement from the transport ministry. Tolls for regular cars will increase between 3.4% and 5.3%, except for the 1-day toll, whose price will rise by 9.5%. The increase for cars running on natural gas will be between 4.9% and 7.1%, with 1-day tolls up by 10%. Finally, plug-in hybrids should see an increase of 4.9% for annual tolls, 9.1% for 1-month tolls, while the rest (10 and 1 days) will remain without change.

We estimate that the average increase will be around 4.5%, which is relatively modest. The weight of road tolls in the CPI basket is about 0.33%, which means the impact on CPI inflation will be marginal, at +0.015pps in January. This is part of regulated prices, so it will not impact core inflation. The transport ministry expects to raise an additional CZK 9bn from the new road tolls.

• Sales increased by 6.1% y/y in January-October, reaching 205,735 units
• Skoda performed a bit under the market, with sales rising by 8.2% y/y in October and 6.5% y/y in January-October
• Petrol car sales led growth both in October and in January-October
• Battery electric car sales fell for the second consecutive month, but plug-in hybrids made up the loss
• The EV market retains a market share of 9.8% in January-October, up by almost 4pps y/y
• Stronger sales imply higher household income and more spending

New passenger car sales rose by 10.6% y/y (wda) in October, adding up to 23,298 units, according to figures from the SDA, the car importers' association. In cumulative terms, passenger car sales increased by 6.1% y/y in January-October, up to 205,735 units. Skoda Auto, the largest car producer in the country, performed weaker than the market average, its sales rising by 8.2% y/y in October and by 6.5% y/y in January-October. Skoda was still the most popular make in the domestic market, with a share of 37.5% in October and 34.5% in January-October.

Data Download

Petrol cars remained the market driver, reporting an increase in sales of 17.2% y/y in October. Performance was particularly impressive that month, and no other car type (by fuel) was even close in terms of contribution. The same applied in January-October, when petrol car sales rose by 9.6% y/y, proving about two thirds of cumulative growth. In comparison, the EV market kept growing, but at a slower pace. Batter electric car sales fell by 14.3% y/y in October, a second consecutive decline. Sales of plug-in hybrids were the driving force in the local EV segment, seeing an 85.3% y/y increase. The strong start of the year kept cumulative EV sales strong, however. Thus, sales of battery electric cars rose by 31.1% y/y in January-October, while sales of plug-in hybrids increased by 77.4% y/y. As a result, the EV market share was 9.8% in January-October, up from 5.9% a year ago.

Used passenger car sales increased by 10% y/y in October and by 3.9% y/y in January-October. While used car sales could not match new ones, they are a solid indication of higher spending, both by households and by firms. Thus, there is certainly a demand recovery, likely caused by rising household incomes.

Total vehicle sales, including buses, motorcycles, trucks, tractors, trailers, increased by 8.6% y/y in October, out of which new vehicle sales increased by 8.5% y/y. In cumulative terms, total vehicle sales rose by 3.9% y/y in January-October, with new vehicle sales rising by 3.7% y/y. Still, passenger cars remained the main growth driver, accounting for most of the growth seen in October.

Question:

Isn't this price cut impacting immediately those on variable rates?

The question was asked in relation to the following story: E.ON energy price cut

Answer:

Unfortunately, this remains unclear, and energy suppliers rarely elaborate. What E.ON said is that the change will impact about 800,000 customers, so we assume they mean those on variable rates, as well as those whose fixed price plans expire soon. They could mean something different, but unfortunately the occasions when a clear distinction is made are very rare. Thus, judgment calls need to be made often to allow any estimate of the impact on CPI inflation.

• Stable retail sales trajectory mirrors balance on labour market, we think
• Stronger headline print due entirely to food segment
• Momentum in consumer durable purchases wanes, likely with exhausted boost from deferred purchases

Retail sales growth accelerated to 3.0% y/y in September, up from the 2.4% y/y growth in the previous month, the statistical office (KSH) reported. The print was slightly stronger than the 2.8% y/y average increase since the beginning of the year, but it has followed a rather stable pattern in the recent months. On a seasonally-adjusted basis, retail sales stagnated m/m, while also showing stabilisation of the general trend since April. We attribute the lacklustre dynamics in retail sales to the labour market, which has stayed practically in balance during a prolonged period. Real net wages have shown a tentative improvement in the past few months, but retail sales did not seem to react, probably suggesting prevailing uncertainty, in our view. Household borrowing has picked up recently, but its impetus did not seem to affect retail sales, so we think that borrowing could be used for other purposes like home renovations or tourism abroad.

Data Download

Data Download

The acceleration of retail sales growth in September was entirely on account of the food sales segment. Food sales increased at a stronger pace of 3.1% y/y during the month, although food consumption has not shown any major trend in any direction recently, we note. Non-food sales slowed down to 3.5% y/y and were below the cumulative average since the beginning of the year. The print did not appear to be a permanent shift away from non-food goods purchases. We think the non-food sales trend also indicated that household consumption has exhausted its potential for faster growth in the short term, possibly constrained by continued uncertainty and prevailing tendency to save. Government stimuli like income tax relief and pensioner vouchers could still provide some further impetus to household consumption in the short term, we expect.

Data Download

The slowdown in the non-food sales in September was on account of manufactured goods in non-specialised shops as well as a dip in clothing sales, which we relate to seasonality from the new school year. Consumer durables sales also weakened compared to the previous month and have generally shifted to weaker growth path as of July, in our view due to exhausted boost from previously deferred purchases. Sales in the other segments of electronics and books as well as pharmaceuticals also showed a weaker performance compared to August.

Fuel sales rose by 0.6% y/y and slowed down compared to the 2.2% y/y growth in the previous month.

• Expansion due to calendar effects, adjusted data shows some moderation in contractionary trend
• Seasonally-adjusted output rises by 1.3% m/m, trajectory stabilises from previous downtrend
• Automotive, electric battery industries continue contracting y/y

Industrial output rose by 1.3% y/y in September, recovering from the steep 7.4% y/y contraction in the previous month, the statistical office (KSH) published preliminary data. This was the first y/y output growth in the sector since March, but it was entirely on account of calendar effects. In working day-adjusted terms, output was still down by 1.5% y/y in September. The calendar-adjusted print represented some improvement compared to the previous month's decline and the longer trend revealed some gradual moderation in the contractionary trend as of July. We are still unconvinced by the data and do not see factors for organic recovery in the sector in the short term. The moderating y/y contraction was likely only on account of low base effects, in our view. Seasonally-adjusted output rose by 1.3% m/m in September, but its overall trend only showed some partial stabilisation after the earlier downward trend.

Data Download

Production decreased y/y in the majority of manufacturing branches in September, the KSH said. Out of the four largest branches, the electronics and food industries expanded y/y during the month, it added. The electronics industry has been the only sustained pro-growth factor in the industry in the past few months, we note. Conversely, output of the transport and electric equipment sectors declined y/y in September, in our opinion highlighting the sustained structural hurdles for automotive-related companies.

The KSH is due to publish the detailed industrial output data for September on Nov 13.

Peace, economy, energy - these are topics PM Viktor Orban and Donald Trump discuss in Washington (Magyar Nemzet)

Power struggle rages: Opposition leader Peter Magyar and his vice presidents are working against each other (Magyar Nemzet)

Government is not stopping - SMEs may receive significant additional funds (Magyar Nemzet)

Audi's Gyor factory receives important work from Volkswagen: This is part of strategic transformation (Vilaggazdasag)

Budapest real estate market is no longer so popular because of its prices, countryside may win (Vilaggazdasag)

Scandal breaks out: Budapest fears China will take control of trolleybuses remotely (Vilaggazdasag)

It has been revealed who is accompanying PM Viktor Orban to America and on what plane (Heti Vilaggazdasag)

Home renovation subsidies are designed to fail at first step for those who need them most (Heti Vilaggazdasag)

Two-thirds of EP condemns rule of law situation in Hungary (Heti Vilaggazdasag)

• Next MPC meeting: Nov 18, 2025
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold
• Rationale: NBH repeatedly warns about need to keep forint stable, stimulate forint savings

The MPC will maintain its current policy stance of keeping tight monetary conditions at least till December, we maintain our baseline scenario. The MPC did not budge from its monetary policy stance on its rate-setting meeting in October in a situation of rising government pressure to cut rates. We recall that PM Viktor Orban renewed the government calls for lower policy rate, saying that the inflation target was unnecessarily high and that there was room for rate cuts in the longer term. Economy minister Marton Nagy followed suit and argued that the inflation target could be achieved also by a lower policy rate. The real interest rate could still remain positive, but it could be lower, Nagy said, in our opinion implying room for rate cuts of around 1pp. NBH officials have insisted on keeping the current policy stance despite the government pressure, we note. NBH executive director in charge of monetary policy Adam Banai pointed out that monetary policy needed to be wary about any forint weakening because the pass-through effect on inflation has become stronger than in previous years and because household inflation expectations have remained elevated. NBH deputy governor Zoltan Kurali also stated on Oct 7 that rushing with rate cuts could weaken the forint, adding that savings was an important monetary policy channel and the high real interest rate stimulated savings. The situation has not radically changed since the MPC September meeting and the September rate decision indicated that the policy rate should remain unchanged for a prolonged period of time, Kurali emphasised.

Data Download

Data Download

The MPC did not revise its forward guidance on its meeting in October, fuelling our expectations that it will stick to its current policy stance in the near term. In the longer term, we believe that recent positive developments could create an opportunity for the MPC to reduce the policy rate without sacrificing its careful and patient policy approach. In particular, the Q3 Inflation Report of the NBH showed some improvement of the inflation outlook and the September inflation data showed an encouraging slowdown in food inflation, we note. MPC members were still wary that these developments might prove transient, according to comments from the October rate-setting meeting. In addition, the forint exchange rate has remained fairly strong and the MPC has already expressed satisfaction about its impact on manufacturing PPI and import prices. The inflation outlook, however, will benefit from a more sustained slowdown in import prices, so the MPC will need to continue supporting a stronger forint in the next month, we believe. Disinflation in the food sector will also need to become more firmly entrenched, which could contribute to moderating consumer inflation expectations. This process could eventually open room for credible monetary policy easing, but the appropriate conditions for this will not be present in the next months, we expect. Accordingly, the updated NBH forecast with the December Inflation Report will be more indicative whether a shift of the monetary policy stance will be possible, in our view.

The MPC reiterated after its October meeting that tight monetary conditions were still warranted and monetary policy will continue to follow a careful and patient approach, together implying no change in the monetary policy stance in the short term. The MPC highlighted the increased importance of the forint for the inflation outlook and inflation expectations. The MPC noted some improvement in inflation expectations, but cautioned that they were still elevated, requiring stable forint in order to ensure they become anchored in line with the mid-term inflation target. It also sounded hawkish on the recent tame inflation data, pointing out that it reflected a strong downward impact from the government's price restrictions, while pricing behaviour remained excessive outside the scope of the price regulations. There were still some more dovish voices in October, highlighting subdued corporate price expectations for the short term, but the emphasis seemed on inflation expectations that were still not consistent with price stability and on the potential uptick in inflation when the margin caps expire.

Post-meeting MPC statement from October rate-setting meeting

Background presentation of NBH governor Varga after October rate-setting meeting

Minutes from October MPC rate meeting

Inflation Report - Q3/2025

MPC meeting calendar 2026

• Stable policy stance adds to monetary policy credibility and predictability, in our view
• Forward policy guidance remains unchanged
• Forint stability essential, inflation expectations not consistent with price stability yet

The MPC decided to hold the policy rate at 6.50% with a unanimous decision in October, according to the minutes from the meeting published by the National Bank of Hungary (NBH). The overnight interest rate corridor was also left unchanged at a symmetrical 1pp band around the policy rate. All ten MPC members attended the October meeting and supported the decision, the minutes showed. The hold decision was the only one on the meeting's agenda, according to the preliminary information from NBH governor Mihaly Varga. The uniform voting should be positive for the predictability of monetary policy in the context of the recent reshuffles in the MPC composition, as well as the government's pressure for policy easing, in our view. We think the unchanged monetary policy stance also supports the NBH credibility and this will be supportive of the forint exchange rate.

Data Download

Data Download

The monetary policy guidance also remained unchanged at the meeting, as Varga had already pointed out. The MPC members highlighted that there was no need to change the forward guidance, reiterating that a careful and patient approach was still called for. Monetary conditions needed to remain tight for the sake of achieving the 3.0% mid-term inflation target, the MPC added. Taming inflation and safeguarding financial market stability would provide the most effective contribution to sustainable economic growth, it said, in our view signalling strong priority of its price stability objective over any economic growth stimuli.

The tight monetary policy stance was warranted by several factors, including the temporary impact of the margin caps and the importance of keeping the forint stable, the minutes showed. Inflation has moved in line with the NBH expectations in the recent months, but the MPC underlined that it remained above the tolerance range even after the margin caps. MPC members believed that underlying inflation was strong and were not convinced that the recent price easing in foods and durables was permanent, adding that monitoring of pricing behaviour was of key importance. The minutes still revealed some more dovish voices within the MPC, we note, given that some members paid attention to subdued short-term corporate price expectations. On the other hand, some members warned with a price rise effect when the margin caps expire and inflation expectations were considered to be incompatible with price stability despite recent moderation.

Keeping the forint exchange rate stable was of key importance for taming inflation expectations, the MPC argued. It did not add more colour, but NBH officials have repeatedly emphasised the increase in the exchange rate pass-through to inflation and have expressed satisfaction that the recent strength of the forint has been already reflected into producer and import prices. MPC members acknowledged the recent monetary easing in the US and, on a regional basis, in Poland but stressed that Hungary's risk perceptions also had to be taken into account. Emerging economies were vulnerable to shifts in investor sentiment in light of the volatile global financial environment, they underlined, adding that investor and market sentiment was important to monitor from this perspective.

MPC lowers interest rates again (Rzeczpospolita)

Tusk eats coalition partners and waits for more [PiS is under fire, far right parties to gain] (Rzeczpospolita)

Will Ziobro return to Poland? (Gazeta Wyborcza)

Threats of PiS politicians against judges are just empty words [such as Ziobro] (Rzeczpospolita)

Farm minister purchases back land for CPK (Gazeta Wyborcza)

Burden worth PLN 8bn falls upon stores [this includes new deposit system, new recycling costs, and construction of e-car charging stations; deposit system is worth PLN 2bn; coming new extended producer responsibility system could cost PLN 5bn, upping prices] (Rzeczpospolita)

Cryptocurrency law, time for president's decision (Gazeta Wyborcza)

mBank says with CHF saga over, it has more to capital to help offer clients more (Rzeczpospolita)

Young people do not save for old age (Rzeczpospolita)

• Next MPC meeting: Dec 2-3, 2025
• Current policy rate: 4.25%
• EmergingMarketWatch forecast: 4.25%

Rationale: The Monetary Policy Council has now cut rates at its four most recent sittings and at five of the past six sittings, taking the key rate down by 150bps to 4.25% in a lot more easing than most predicted at the beginning of the year. The MPC has cut in part as the inflation outlook has improved, and its most recent inflation projection -- the broad outline of which was released with its November post-sitting statement -- show 2025 inflation within the range, 2026 inflation moving towards the target, and 2027 inflation just above the target. That and a less bullish economic growth outlook helped bring about the easing.

The MPC's post-sitting statement does not, however, go into much detail, and it is unclear how much more the council is willing to cut in the near term. For that, NBP and MPC chair Adam Glapinski's press conference on Thurs. will be critical. Glapinski is likely to stress the fall of inflation as well as note that core inflation is also set to come down. He might talk about potential threats to inflation from the regulated sector, such as power prices, but it appears most of the moves in relation to that suggest power won't cause a major problem. The administrative side will also benefit from the EU Council decision to delay to 2028 the launch of the ETS2, which Glapinski has previously said could up CPI inflation by up to 2pps. EU members are also to review the ETS2, and the government says it wants to further delay it or minimize any potential impact on the economy and households.

Glapinski said at his October presser that there was about 50bps in 'easy' cuts to come. Ostensibly, 25bps of that was delivered at the November suiting, and it remains to be seen when the other 25bps might come. Glapinski also suggested in October that the December sitting is more of a "holiday" one and thus no move should be expected next month. That might still leave the early January sitting (the calendar hasn't yet been released) as seeing a cut.

But the early 2026 outlook is likely one for a pause as the MPC waits for inflation data. The way Statistics Poland (GUS) updates its inflation basket means that the December flash inflation release now set for Dec 31 (but which we could see delayed) will be its last before late March, when it will flash March inflation. That means the February and March council sittings won't have updated inflation data. Moreover, GUS only releases partial, preliminary data for January in mid-February, so the February sitting will be held with only December inflation. The early March meeting will have the January partial print, but no updated info either. We think this means the MPC will either move in January or wait until April.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2025)

Most recent MPC voting results

Archived video of all MPC press conferences

• MPC approved new inflation projection that lowered near-term inflation outlook

The Monetary Policy Council somewhat surprisingly cut interest rates by 25bps on Wed. in the fourth straight cut and said in its post-sitting statement it did so because of the decline in inflation and the improved inflation outlook for the coming quarters. The MPC noted that CPI inflation slowed to 2.8% y/y in October from 2.9% in September in a print that came in below the 3.0% consensus expectation. The MPC also approved an updated Inflation Report, which lowered the inflation outlook for 2025 and 2026, though it did raise it slightly for 2027.

The new projection, whose data cutoff was said to be Oct 15, saw a 50% chance that, with flat rates, inflation will be 3.6-3.7% in 2025 (midpoint: 3.65%), which marks a 0.30-pp reduction from the previous projection in July (3.5-4.4%, with midpoint at 3.95%). For 2026, the midpoint projection from the 1.9-4.0% range was 2.95%, which was down 0.15pp from 3.10% in July (range: 1.7-4.5%). Finally, for 2027, the new range was 1.1-4.1%, giving a midpoint of 2.60%, which was up 0.25-pp from 2.35% in July (range: 0.9-3.8%). It is not clear if the 2027 forecast includes the impact of the ETS2, though the EU Council decided Wed. to delay its launch to 2028 from 2027.

For GDP growth, the new range for 2025 is 3.1-3.8% (midpoint: 3.45%), which is down from 2.9-4.3% in July (midpoint: 3.60%). The new range for GDP growth in 2026 is 2.7-4.6% (midpoint: 3.65%), which is well up from 2.1-4.1% before (midpoint: 3.10%). For 2027, the range is 1.5-3.7% (midpoint: 2.60%), which is up slightly from 1.3-3.7% in July (midpoint: 2.50%).

Besides that, the MPC noted only that the latest data suggested ongoing favourable economic conditions. It noted that September saw a rise in retail sales, industrial output, and construction and assembly production in annual terms, and that quarterly data from the enterprise sector indicated a gradual slowdown in wage growth amid a further fall in employment in annual terms.

Overall, the below-expected CPI inflation print led us to believe there was a greater chance of a cut in November than a hold, though with a big uncertainty due to the projection. In the event, the projection was just dovish enough to secure the cut, likely as the 2025 and 2026 inflation projections were lowered. NBP and MPC chair Adam Glapinski will hold his monthly presser on Thurs. and it will be key. Glapinski said in October there was probably 50bps in easy cuts to be had. Though the MPC is not likely to touch rates for its "holiday" meeting in December, there is a chance it might cut in January. It will be interesting to see if Glapinski notes that the disrupted CPI release schedule in Q1 2026 might delay a cut or when he gives guidance for the next move. We see the potential likely scenarios as a cut in January followed by a hold to April or a hold from now all the way to April.

• FinMin increases total financing to at least PLN 553.0bn from PLN 520.7bn at end-Sep
• FinMin did cut its 2025 financing target, meaning it is pre-financing 2026 needs
• FinMin says cash total falls to PLN 154.5bn at end-Oct

Poland's Finance Ministry said Wed. it covered its original gross financing requirement of PLN 553.0bn at end-October, lifting this from 94% at end-September, according to its monthly debt report. The total is in line with the coverage rate given previously by Deputy Finance Minister Jurand Drop. The total amount raised to at least PLN 553.0bn at end-October from PLN 520.7bn at end-September. The FinMin has cut its gross financing goal for 2025 to PLN 488.6bn, and that technically means it is already pre-financing 2026 needs of PLN 689bn. The ministry did not publish the further breakdown.

The FinMin's cash pile was cut to PLN 154.5bn at end-October from a revised PLN 160.9bn at end-September. The ministry, which breaks down its total with a one-month delay, said that in September it had PLN 117.9bn of zloty in its accounts and PLN 43.0bn worth of foreign currencies.

In terms of nominal debt redemptions left in 2025, the total fell to PLN 20.7bn at end-October. The ministry will redeem PLN 13.3bn of T-bills, PLN 5.9bn of retail bonds, and PLN 1.5bn of foreign loans and bonds.

Overall, the FinMin is pre-financing its 2026 borrowing needs in earnest. Preliminary estimates at that it probably can get to 40% of the total depending on how much cash it uses in the end. In 2024, it used PLN 137bn to pre-financing 2025 financing, so anything like that will push the likely total towards that 40% level.

• Post-sitting statement to be published at 16:00 CET
• Glapinski to hold his presser on Thurs. at 15:00 CET

Poland's Monetary Policy Council decided Wed. to lower its key rate by 25bps to 4.25%, according to a statement. The MPC will publish its post-sitting statement at 16:00 CET. The decision was in line with the new consensus expectation. NBP and MPC head Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the move beyond what is in the usually brief post-sitting statement.

Data Download

Overall, the MPC has now cut rates by 150bps this year, but it seems very likely that will be it. Glapinski said openly in October that the council sees the December meeting as something of a "holiday" one and doesn't like changing the cost of money just before the holidays. Still, the council went beyond what many had expected for the year, though there is a chance it will move into a wait-and-see period. After December, the council could cut in January -- for which it will have updated inflation figures -- but for all of the Q1 meetings it won't have either updated inflation figures or full ones due to the way Polish Statistics (GUS) updates the inflation basket. Though the MPC clearly can cut without inflation data, we have a feeling it will probably take a wait-and-see stance until April and then see how much further it can go. It is likely that 3.50% is near the terminal rate, though it is unclear how fast it will want to get there, especially with ETS2 still threatening 2027 inflation.

• NBP's Glapinski has said ETS expansion to buildings and road transport could up CPI by 2pps
• Climate minister says main govt goal is not to minimize or eliminate impact on households

The EU Council agreed Wed. to delay the entry into force of the expanded EU emissions trading system for buildings and road transport, the so-called ETS2 by one year from 2027 to 2028, according to a statement. The expansion of the ETS2 could up CPI inflation by some 2pps, NBP head Adam Glapinski has been warning. The Polish government has been seeking to revise the system and will be happy at the very least with the delay. The ETS2 system is now to be reviewed.

Separately, Climate Minister Paulina Hennig-Kloska said Wed. that the main goal of the negotiations on the ETS2 revision for Poland in the coming months is to minimize or even eliminate the impact of this directive on the costs of living of households and the competitiveness of the economy, according to comments cited being made at a news conference by the state news agency PAP. Hennig-Kloska also said it would be good if the ETS2 launch could be postponed even more.

The EU Council agreement came during a meeting in which EU environment ministers agreed to establish a climate target for 2040, which is that Union greenhouse gas emissions are to be reduced by 90% from 1990 levels.

Overall, the Polish government chalked up the first success in terms of its goal of minimizing or eliminating the impact of the ETS2. A delay to 2028 means the potential entry into force will come after the next general election, which is due by autumn 2027. It also pushes the ETS2 question to beyond the Monetary Policy Council's current policy horizon, which runs to end-2027. That should give the MPC more ability to cut interest rates in the near term. But of course the potential ETS2-related threat to inflation will continue to exist as long as no broader reform of the move is done.

• Total number of inquiries rises 24.5% y/y in Oct

The total value of mortgage loan inquiries rose 34.3% y/y to PLN 474,860 in October 2025, according to the Credit Information Bureau (BIK) Housing Loan Demand Index published Wed. The value rose 0.5% m/m. In terms of the number of loans, mortgage inquiries rose 24.5% y/y to 42,920 in October from 34,480 a year earlier. The number of people applying for a mortgage rose 7.6% m/m.

BIK noted that October saw almost a quarter more people than a year ago applied for a mortgage, confirming the growing trend of interest in mortgage bank loans. It stated that such appetite is in part based on the Monetary Policy Council's decisions to lower rates, though it added that even the announcements regarding interest rate changes help. It added that the impact of the 25-bp cut from early October would be more visible in the November reading. "If the current pace of loan sales is maintained and the average loan amount continues to grow, we can expect a record value of mortgage loans granted in 2025," BIK analyst Slawomir Nosal said.

Overall, BIK summed it up pretty well and it seems likely that the 125bps in rate cuts announced by the MPC so far this year is helping heat up loan demand, including for mortgages. Mortgage loan demand can be partly stoked more because many sat on the sidelines waiting for a government program that hasn't really materialised, meaning lower borrowing costs can be a stimulus. The MPC might even cut rates more in November, further fanning the flames of loan demand.

• FX-protected deposits decline sharply, nearing complete phase-out by year-end
• Recent outflows from KKM accounts largely convert into FX, we note
• Ministry plans tax updates below revaluation, guided by inflation projections
• Administration advances key reforms and prepares new manufacturing industry support

The exit from FX-protected deposits (KKM) had been orchestrated smoothly and the stock of these instruments contracted to TRY 171bn as of Oct 24, and was projected to slip below TRY 5bn by year-end, FinMin Mehmet Simsek said in his address at the parliamentary planning and budget committee. However, here, we note that, today the CBT released a study, and it showed that, over the past two months, more than 80% of KKM outflows converted into FX. Although the residual KKM stock is now small, we flag the behavioural signal from economic agents.

Headline consumer inflation eased markedly, and the annual rate in October receded to 32.9%, a retreat of 15.7pps y/y, Simsek stated. The ministry foresaw the disinflation phase continuing, anchored by restrictive monetary settings, a supportive but disciplined fiscal stance, prudent pricing of administered tariffs, and supply-side actions such as expanded social housing. The forthcoming adjustment of taxes and fees might be set below the statutory revaluation ratio, guided instead by projected inflation and fiscal space, he added. Economic activity stayed moderate and a growth profile akin to 2024 was anticipated for 2025, a trajectory deemed compatible with further progress on price stability, he underlined.

Fiscal discipline had been re-established and was set to endure, according to Simsek. Draft legislation covering public-procurement overhaul, state-owned-enterprise governance and stronger fiscal rules for local administrations was scheduled for parliamentary consideration, he indicated. Parallel to these measures, new support packages for the manufacturing sector were being finalised to broaden access to finance and spur investment, he indicated.

Turkey's overall tax burden stood at 23.5% of GDP, placing the country among the five least-taxed members of the OECD, whose average was 33.9%, Simsek stated. Indirect taxes accounted for 10.7% of GDP, while direct levies contributed 12.8%. The latter ratio ranked third lowest in the organisation and underscored the need to widen the direct tax base, he informed.

Despite higher borrowing needs stemming from earthquake relief, public indebtedness remained contained, Simsek further added. Interest expenditures were expected to reach 3.3% of GDP in 2025 and 3.5% in 2026 before trending back to 3.3% by 2028 as reconstruction costs tapered and the primary balance improved, he highlighted.

Ex officio investigation is launched against CHP leader Ozgur Ozel for insulting President Erdogan (Hurriyet)

Directorate of communications denies allegations regarding social security institution (Hurriyet)

President Erdogan for Kurdish leader Demirtas: We will comply with whatever judiciary says (Hurriyet)

Interior minister Yerlikaya's harsh response to allegations on social media: Despicable perception study (Hurriyet)

IMM mayor Ekrem Imamoglu's father and son are testified at police station (Hurriyet)

Hazelnut exports generate USD 1.8bn in revenue in Jan-Oct (Sozcu)

CHP's Gurer: Problems in agriculture are driving up shelf prices(Sozcu)

FETO operation in Samsun: 5 suspects are referred to court (Sozcu)

CHP leader Ozgur Ozel: Dilek Imamoglu's diplomatic passport is cancelled (Sozcu)

Trade minister Omer Bolat: Turkey is growing uninterruptedly (Sabah)

Turkey's first national high-speed train to be on rails in 2026 (Sabah)

Defence minister Yasar Guler: PKK and all its extensions must end its activities (Sabah)

Defence industry exports reach USD 6.7bn in Jan-Oct (Sabah)

• Justice minister also outlines legal route through Ankara regional court chamber

Turkey is commitment to judicial independence, President Erdogan addressed journalists, stating that the nation functioned as a jurisdiction governed by law and that authorities will adhere to whatever determination the judiciary rendered on this matter, local media said. Erdogan's statement conveyed his administration's stance on the European Court of Human Rights' (ECHR) finalised violation ruling concerning former pro-Kurdish HDP co-chairman Selahattin Demirtas. MHP leader Devlet Bahceli, speaking after his own party gathering yesterday, had signalled that a possible release of Demirtas would be viewed favourably, we remind.

Justice minister Yilmaz Tunc also subsequently provided the first official ministerial commentary on the finalized ECHR violation ruling, as of today, we note. The minister clarified the procedural pathway, noting that should the ruling be forwarded to the 22nd criminal chamber of the Ankara regional court of justice, or should concerned parties submit applications, the court would conduct an appropriate evaluation of the matter.

When questioned about whether a peace commission should proceed to Imrali to meet with imprisoned Kurdish leader Abdullah Ocalan, President Erdogan declined to provide a response, leaving this politically sensitive query unaddressed, we underline.

• Next MPC meeting: Dec 11, 2025
• Current policy rate: 39.5%
• EmergingMarketWatch forecast: Cut by 100-200bps
• Rationale: CBT favours median and SATRIM inflation measures, ignores wider core signals, drives misaligned easing

We project the CBT to maintain an accommodative stance at the forthcoming MPC meeting, delivering a 100-200bps reduction in the policy rate, even though, in our assessment, a pause would be warranted to keep the disinflation path intact. The monetary authority appears to calibrate decisions across multiple underlying measures, repeatedly referring to median inflation in its policy statements, prompting us to incorporate them in our analytical framework.

For median inflation computation, we extracted Turkstat's publicly accessible price indices across 143 categories, followed by seasonal adjustment via locally weighted regression-based trend decomposition. Subsequently, we derived y/y median inflation across these components. Additionally, we constructed the seasonally-adjusted trimmed mean (SATRIM) through de-seasonalised series processing. Computing each component's annual inflation rate, we executed monthly ranking procedures, systematically excluding the extreme 15% tails, both from lower and upper bounds, then averaging the range to establish the y/y SATRIM. Below, we present findings alongside seasonally-adjusted y/y Core B and Core C inflation trajectories.

Data Download

At face value, median and SATRIM readings suggest scope for further accommodation by the CBT, but we are more cautious. For this purpose, we conducted a rolling window examination, which revealed median inflation commands superior predictive accuracy for 12-month forward headline CPI across both adjusted and raw specifications, with SATRIM, Core B, and Core C following respectively. Here, we do not get into the technical details, but the results are available upon request. Nevertheless, we observed that forecast error differentials were marginal, precluding definitive conclusions on the superiority of any of the four inflation measures. Extending the analytical horizon to 60 months, to detect potential regime transitions, exposes intervals where median inflation exhibits relative underperformance. This finding, in our assessment, underline that despite median and SATRIM measures' statistical efficiency, exclusive reliance risks policy misalignment. Specifically, we would consider it excessive confidence on the part of the CBT if it justifies its accommodation purely because median and SATRIM register sub-30% readings, while disregarding Core B and Core C dynamics.

Compounding concerns, the CBT's Q3 inflation report communicated a 24% target alongside a 29% upper projection threshold, signalling policy calibration toward the 24% objective. Yet subsequent actions delivered persistent accommodation, we remind. Present dynamics suggest not merely the 24% target, but even the 29% upper boundary appears unattainable. This divergence generates substantial credibility vulnerability, especially if market observers interpret the overshoot as confirmation that inflationary momentum remains insufficiently suppressed. This would potentially compel the CBT toward either defending forward guidance through deferred easing or accepting expectations recalibration. Notwithstanding, we reaffirm our prior CBW position and highlight that rate reduction should be suspended to preserve the disinflation trend.

Summary of October rate-setting meeting

MPC rate decision in October

Quarterly Inflation Report for Q3

Monetary policy strategy for 2025

US Treasury unwound its investment in BCRA bills created after market intervention (Infobae)

US rescue: BCRA signals Scott Bessent unwound peso position, was the swap activated? (Ámbito)

JPMorgan CEO says Argentina won't need a bank loan thanks to foreign investment inflows (Infobae)

Primary auction: Economy Ministry renewed all maturities, cut rates and extended terms (Ámbito)

New BCRA signal on rate cuts: impact on deposits and credit (Ámbito)

CGT elected new triumvirate as key union leaves and labor reform talks begin (Infobae)

The government will call extraordinary sessions in Congress between Dec 10 and 31 (Ámbito)

Vaca Muerta: wet gas projects for LNG export to be included under RIGI (EconoJournal)

Caputo confirmed first RIGI project in Santa Fe for a megaport construction (La Política Online)

Auto production fell for the fourth consecutive month (Clarin)

Milei met with 100 lawmakers from LLA and PRO at Casa Rosada to discuss reform agenda (Clarin)

• Dimon says JPMorgan would be "all ears" if Argentina needs special financing, implies it currently doesn't

JPMorgan Chase CEO Jamie Dimon said Argentina's government may not need a loan from international banks to manage its debt, according to quotes from Reuters published late Wed. Still, Dimon said JPMorgan would be "all ears" if Argentina needs special financing. Dimon said President Javier Milei is doing a good job overhauling the country's economy, to the point that as much as USD 100bn in foreign capital could return to Argentina, as major companies want to invest.

The bank loan in question is a facility of up to USD 20bn originally mentioned by US Treasury Secretary Scott Bessent. While not much was said about it officially, it is believed the government discussed the possibility of a bank loan led by JPMorgan, Bank of America, Goldman Sachs and Citigroup, and the funding would be used to pay down upcoming FX bond obligations and to launch a bond repurchase tender.

Dimon's words matter because JPMorgan is believed to be the lead agent for the potential lenders. In fact, Dimon visited Argentina and met with Milei right before the October midterm election, and this was interpreted as a sign that the loan would be a go. However, the initial motivation for the loan was to help the government avert an early FX debt crisis, and the outcome of the midterm election did a lot of that work, so it would not be surprising if the lenders chose not to move forward in the current context.

• Balance sheet data suggests US Treasury got out of ARS-denominated instruments and acquired a USD claim on the BCRA

Changes in the composition of the BCRA's balance sheet suggest that the US Treasury may have nominally reacquired the US dollars it had sold in Argentina's spot market to support the Argentine peso earlier in the month, according to the balance sheet update for the week of Oct 24-31. However, it seems that the US Treasury did not take the USD back, and instead the BCRA activated a tranche of the USD 20bn currency swap equivalent to the USD the US Treasury had sold. This would mean that the US Treasury basically closed its trade, not holding peso-denominated securities anymore, and instead holds a claim estimated at USD 2.0bn on the BCRA for the activated tranche of the swap. US Treasury Secretary Scott Bessent posted on X that the US turned a profit with its economic bridge for Argentina, which is consistent with the notion that the US turned its peso holdings back into a USD claim.

In terms of the BCRA's balance sheet, data for Oct 14-23 showed an increase in local currency liabilities in the form of central bank bills for the equivalent of USD 1.8bn, and the only reasonable explanation for this spike was that the US Treasury had acquired bills with the pesos it obtained by selling USD in the spot market. The data for Oct 24-31 show the stock of local currency central bank bills declining to near zero once again, but a similarly-sized increase under the item line "other liabilities", which would be consistent with the activation of a tranche of the currency swap. The next report on net international reserves, to be published between Nov 20 and Nov 25, should allow us to confirm whether the transactions were as currently understood.

• Govt likely tries to exploit midterm victory boost to rush key labor, tax, and criminal reform starting Dec 10

President Javier Milei intends to summon provincial governors for a meeting again, having already met them last week, to take another step in discussions for a set of upcoming reform proposals that the ruling Freedom Advances (LLA) wants to rush through Congress in December, according to reporting by Clarin and Infobae. The government wants to approve the 2026 budget bill, and reforms on taxes, labor rules and criminal laws. Officials are looking to tie the discussions so that any budget allocations or cash transfers that the federal government grants to the provincial rulers can be considered favors to be exchanged during the treatment of the other reforms. All provincial governors have varying degrees of influence on the national Congress through legislators elected from the provinces they administer.

The legislative turnover that will reshape Congress in a favorable way for LLA will take place on Dec 10. Congress is usually in recess from December to the end of February, but Milei will surely call extraordinary sessions to keep the legislature active during the three months. Not only will the government want Congress active in approving reforms, but also during extraordinary sessions the executive branch holds the prerogative to set the legislative agenda.

Overall, precedent suggests that it is a good idea for LLA to rush the legislative process as much as possible to try to get its reforms through Congress over the next three months. The ruling party will still have political momentum from the midterm elections that definitely helps it gain votes in a fragmented Congress, and the Southern Hemisphere summer is usually the best time to push reforms that will be controversial with a large share of the general public.

• Project Timbues is for a port able to store fertilizers, iron ore, steel products, grains, and fuels

Economy Minister Luis Caputo announced Wed. that the government approved a ninth project for entry into the Incentive Regime for Large Investments (RIGI), this time a USD 277mn port project, according to a post on his X account. This project, named Terminal Multipropósito Timbúes, is for a port able to store fertilizers, iron ore, steel products, grains, and fuels alongside the Parana waterway in the province of Santa Fe.

The RIGI is a program designed to attract and encourage large-scale investments in Argentina. It offers significant tax, customs and exchange benefits, while establishing a solid legal framework to guarantee legal certainty and facilitate the realization of long-term investment projects. Benefits include:

• Regulatory stability for 30 years
• Reduced income and dividend tax rates of 25% and 3.5% respectively
• Accelerated depreciation on fixed investments
• Bank tax payments become 100% deductible from income tax
• Export tax exemption after three years
• Import tax exemption for capital goods and parts
• Exemption from obligation to turn export proceeds into domestic currency
• Free access to the FX market for the payment of profits, dividends, or interest

• Overnight rate turns negative, cut to influence Treasury primary auction outcome
• Market is re-monetizing by reducing Treasury bill holdings and BCRA rate cuts validate this
• Question is what happens with plan to re-monetize through unsterilized USD purchases
• Market getting ahead of slow BCRA waiting for stronger exchange rate

The BCRA cut the overnight rate at which it has been absorbing Argentine pesos from the market to 22% from 25%, according to offers submitted Wed. to the trading platform. With this, the effective monthly interest rate declines to 1.85%, which compares against expected CPI inflation rates above 2.0% m/m for the next few months. This cut is likely to influence the outcome of a Treasury primary auction that closes at 3pm Wed.

Interest rates have been declining fast since the ruling Freedom Advances (LLA) obtained a surprisingly large victory in midterm elections at the end of October, and the BCRA validated this process. Moreover, in a primary auction held last week, only 57% of maturities were rolled over, chiefly because the market demanded liquidity, which resulted in the Treasury injecting ARS 5tn into the economy out of its deposits.

The BCRA and government officials expected a strong re-monetization process in the aftermath of the election. For now, this process is taking place through the market reducing its holdings of Treasury bills. A key question is how this influences FX reserve accumulation plans. In a much celebrated change of strategy, BCRA officials openly communicated that they expected to guide the re-monetization process through unsterilized USD purchases, fulfilling a dual goal alongside the necessary accumulation of FX reserves. But if the BCRA moves slowly, the market could end up re-monetizing in other ways, as we are seeing.

Unfortunately, it is possible that the BCRA's badly calibrated currency band scheme and authorities' desire for a strong exchange rate play against reserve accumulation once again. The BCRA hasn't moved to buy reserves yet, and it seems likely that one of the reasons is that the exchange rate remains close to the ceiling of the currency band.

Senate approves income tax exemption for those earning up to BRL 5,000 (Veja)

Lula calls Senate approval of income tax exemption 'tax justice' (Metrópoles)

[ForeignMin] Mauro Vieira will meet again with US's Marco Rubio next week (Agência Brasil)

Expenses are 'completely within' the fiscal framework, says Haddad (UOL)

BCB ends Drex project, the Digital Real (Gazeta do Povo)

Government is totally against bill that equates factions with terrorist organizations, says [govt leader in Congress] Gleisi (G1)

Lula to invite European leaders to CELAC meeting in Colombia (Correio Braziliense)

Haddad meets with [Senate leader] Alcolumbre to discuss new tax bill on online betting and fintech companies (O Globo)

Federal District government requests medical evaluation to determine whether Bolsonaro can be imprisoned in [Penitentiary Complex of] Papuda (CNN Brasil)

• Unanimous approval mirrors lower house vote and underscores the political pressure against opposing the bill
• Bill now goes to President Lula for his signature, which is expected after his return from COP30 by mid-Nov

The Federal Senate unanimously approved Wed. the income tax reform bill that raises the tax exemption threshold to BRL 5,000 per month and creates a minimum tax for individuals earning more than BRL 50,000 per month as a compensatory measure. The bill now goes to President Lula da Silva for his sanction, which is expected to occur after his return from COP30 by mid-November. The reform must be enacted by year-end to allow the changes to take effect in 2026.

Overall, as expected, the bill's approval was swift and faced little opposition given that it benefits a large portion of the population and voting against it could harm lawmakers' reelection prospects in 2026, similar to what happened in the Chamber of Deputies. For the Lula administration, this outcome was ideal since the bill proceeds directly to the president without requiring additional analysis by the lower house, meaning it will take effect in 2026, when Lula is expected to seek reelection. We expect the reform to become one of Lula's main campaign talking points, as it fulfills a 2024 campaign promise and is set to benefit much of the middle class. It is also noteworthy that Lula passed two tax reforms during his mandate despite lacking a solid base in Congress.

From a fiscal standpoint, the government expects the reform to be revenue-neutral, that is, the revenue loss from the higher exemption threshold is to be fully offset by the new tax on high-income earners. However, some studies suggest a potential shortfall of BRL 1bn-4bn next year, which could necessitate fiscal adjustments for the primary surplus target of 0.25% of GDP to be met. Should this occur, the government will likely seek new revenue sources since spending cuts are highly unlikely in an election year, especially since they would also likely face congressional resistance, even though they add pressure to an already fragile fiscal framework. From a monetary policy perspective, the increase in disposable income is likely to add demand-side inflationary pressures, which might delay the start of the Copom's rate-cutting cycle to between Q1 and Q2 2026 -- or even later if inflationary pressures intensify.

• Copom reaffirms view that the scenario still requires a significantly contractionary monetary policy stance for a prolonged period
• Copom says maintaining the Selic at the current level for a prolonged period would be sufficient to ensure inflation convergence to target
• Copom lowers its 2025 inflation forecast to 4.6% from 4.8% in the previous meeting

The BCB's Monetary Policy Committee unanimously decided Wed. evening to hold the Selic policy rate at 15.00% and did not give any indication of the beginning of the easing cycle, as expected, according to the post-sitting statement. This is the third consecutive meeting the Copom kept the Selic unchanged after a 450-bp hiking cycle. The Copom said the economic environment continues to reflect de-anchored inflation expectations, elevated inflation forecasts, resilient economic activity, and labor market pressures. Therefore, it said maintaining a significantly contractionary monetary policy stance for a prolonged period is necessary to ensure inflation convergence to the target. The committee also stated that keeping the Selic at the current level for a prolonged period would be sufficient to guarantee this convergence -- taking a more assertive tone than in its previous minutes regarding the end of the tightening cycle. Nevertheless, it reiterated that it "will not hesitate to raise the Selic again if necessary," though we consider this scenario unlikely.

Data Download

The Copom noted that economic activity has moderated, as expected, but highlighted that the labor market remains dynamic. The committee said recent data point to a cooling in both headline and core inflation measures, although they still remain above target. The Copom lowered its 2025 inflation forecast to 4.60% from 4.80% at the previous meeting, with that now approaching the 4.50% upper limit of +/- 1.50-pp fluctuation band around the 3.00% target. The inflation forecast for 2026 was left unchanged at 3.6% while the forecast for Q2 2027 was reduced slightly to 3.3% from 3.4%. The committee added that it continues to monitor the impact of the additional US tariffs and domestic fiscal policy on the economy and monetary stance.

The Copom kept its inflation risk balance unchanged: it is numerically balanced but with above-normal risks on both sides. Upside risks include persistently de-anchored expectations, services inflation exceeding forecasts due to a wider output gap, and pressure from both external and domestic sources, such as sustained FX depreciation. Downside risks include a sharper-than-expected domestic slowdown and its potential disinflationary impact, a more pronounced global deceleration amid trade disruptions and uncertainty, and falling commodity prices.

The Copom also said the external scenario remains uncertain due to US trade policies and their impact on global financial conditions, warranting caution in the conduct of monetary policy.

Overall, the Copom's unanimous decision was broadly expected, as was the maintenance of its hawkish tone. In our view, the main message conveyed by the decision is that the tightening cycle appears to have effectively come to an end, as the committee stated that keeping the Selic at the current level for a prolonged period will be sufficient to ensure inflation convergence toward the 3.00% target. There was no mention of an easing cycle, also in line with our expectations, and this supports our expectation that the Selic will remain unchanged at least through year-end given the uncertain external environment and domestic fiscal concerns ahead of an election year. In our view, the easing cycle is likely to only begin between Q1 and Q2 2026.

• Sales fall y/y in Oct to add to eight months of mixed signals
• Sales increase 7.2% m/m in Oct in second consecutive increase

Total automotive sales, excluding motorcycles, fell by 1.6% y/y to 260,758 units in October, following a 2.9% increase the month before, but extending the trend of mixed yearly results seen over the past eight months, according to data released Tues. by the National Federation of Automotive Vehicle Distribution (Fenabrave). On a monthly basis, sales rose 7.2% m/m, marking the second consecutive increase. One additional working day in October compared to both the prior month and the same month last year contributed to the uptick. From January to October, total sales rose 2.3% y/y to 12.1mn units.

Data Download

Passenger cars, which accounted for 73.9% of all sales in October (up from 73.4% in September), fell by 1.3% y/y, halting a three-month increase streak. Truck sales fell 6.7% y/y in their eighth consecutive drop while bus sales fell a sharp 22.9% y/y in their fourth consecutive decline. Light commercial vehicle (LCV) sales were the only segment to rise in October, up 0.8% y/y in their second consecutive increase. In monthly terms, all categories posted increases.

Overall, the improvement in new car sales was attributed to the additional working day, a more functional credit environment, and incentives under the Sustainable Car Program, which reduced taxes on more efficient domestic compact cars, according to Fenabrave. New car sales are forecast to rise 2.6% in 2025, a more moderate pace than anticipated earlier this year as tight monetary policy continues to weigh on the sector.

• Services PMI holds below neutral mark for seventh consecutive month
• Weaker demand and decline in new businesses drive services contraction, though employment posts marginal increase and expectations remain optimistic

The S&P Global Services Business Activity Index for Brazil rose 1.4pts m/m to 47.7pts in October from 46.3pts in September, following a 3.0-pt decline the month before, according to data released Wed. by the S&P Global Ratings. Despite the increase, the index remained below the 50-pt neutral mark for the seventh consecutive month. Weaker demand conditions continued to weigh on new business, sustaining the contraction in the services sector in October, though at a slower pace than in September, and that allowed employment to improve marginally. Expectations also remained positive for the next 12 months, supported by a more stable inflation outlook, although some companies noted concerns over defaults and potential disruptions related to the upcoming 2026 elections.

Data Download

Input costs and selling prices rose at their fastest pace in three months as companies reported higher prices for construction materials, energy, food, stationery, and transportation. The increase in costs was attributed to higher lending rates, unfavorable exchange rates, and the additional US tariffs.

Overall, the services PMI has contracted for seven consecutive months, reflecting the impact of the Copom's monetary tightening on the economy. However, the committee remains concerned about services inflation, which is supported by a tight labor market and gradually slowing economic activity. As measures such as the income tax reform are expected to stimulate demand in 2026, we believe the Copom is likely to remain cautious with its monetary policy and maintain its hawkish tone amid fiscal uncertainties and rising concerns ahead of the 2026 elections, thus keeping the Selic rate at 15.00% at least through year-end.

• MPC meeting: Nov 4-5, 2025
• Current policy rate: 15.00%
• EmergingMarketWatch forecast: Hold

The BCB's Monetary Policy Committee (Copom) is expected to hold the Selic rate unchanged at 15.00% in its Nov 5 policy decision as economic activity continues to decelerate and inflation eases. We also expect the hawkish tone to be maintained amid fiscal concerns, and we see any indication of a looming easing cycle as unlikely. The Copom did not provide guidance at its previous meeting, but stated that the scenario of de-anchored inflation expectations, elevated inflation forecasts, resilient economic activity, and labor market pressures required a very restrictive monetary policy stance for a prolonged period. In our view, this scenario remains largely unchanged, though inflation expectations have been slowly converging toward the 3.0% target and economic activity has been losing momentum.

Although recent data suggest that monetary policy has been cooling, both in terms of economic growth and inflation, mixed signals persist, which in our view will be used to justify the Copom's hawkish tone and expected holding of the Selic rate. The labor market maintained its lowest unemployment rate on record for the third consecutive month in the rolling quarter ended in September while real wage growth hit another record high, maintaining demand-side inflationary pressures in a context in which the Copom sees core inflation as still above the level consistent with convergence to target. It is worth noting that the labor market appears to be reaching its limit after consecutive declines in unemployment, but the Copom's tough stance leads us to believe that committee members will not be satisfied with early signs of a reversal and will only act once data show a clear and sustained deceleration trend.

Another factor supporting the Copom's hawkish tone is fiscal policy, which remains focused on boosting revenues while delaying a necessary review of expenditures. Following a defeat in Congress, the government reissued several measures aimed at spending control and revenue increases through bills already under discussion in the legislature. All indications suggest these measures should pass and provide some relief to fiscal accounts in 2026 (around BRL 30bn), when the government targets a primary surplus of 0.25% of GDP. Nevertheless, the government's reliance on revenues to achieve the surplus is risky in a context of economic deceleration caused by monetary tightening, which not only could require budget freezing, but would also feed back into an already expansionary fiscal stance intended to sustain growth in 2026 -- an election year in which President Lula da Silva is expected to seek reelection. One measure likely to be approved and to boost economic demand is the income tax reform, which should increase households' disposable income and potentially delay the start of the Copom's rate-cutting cycle.

Overall, the Copom's expected decision to keep rates unchanged should not come as a surprise, but uncertainty remains regarding potential forward guidance and the start of the easing cycle. We do not expect the Copom to signal any move toward rate cuts given the persistently hawkish tone in its minutes and members' recent remarks. In our view, the current environment still calls for a firm stance on price control amid fiscal uncertainties and recent government comments favoring rate cuts, which is heavily related to the beginning of the electoral cycle. Further, the persistence of de-anchored inflation expectations for longer horizons (2027 and 2028) supports the expected hawkish tone.

Should any easing appear in the Copom's tone, we believe it would be limited to a definitive indication of the end of the tightening cycle as the committee has not yet ruled out additional hikes if deemed necessary -- a stance we believe is linked to maintaining its credibility. Even that, however, remains uncertain amid the continued hawkish communication by its members. This track record also leads us to believe that the Copom will prefer to carefully assess the impact of new fiscal measures on the economy in early 2026, such as the income tax reform and the new housing program, suggesting that the easing cycle will likely begin only between Q1 and Q2 2026.

• Police raid in Rio de Janeiro slums last week has boosted right-wing candidates seeking to succeed Bolsonaro
• Violence and crime are the population's top concerns, making public security a central topic in the 2026 elections

President Lula da Silva termed as "disastrous" Tues. the police operation in Rio de Janeiro that left 121 people dead in the city's slums, according to comments made to the press. Lula said that the Federal Police will take part in the investigation. The operation was ordered by Rio de Janeiro Governor Cláudio Castro, a member of the hard right Liberal Party (PL), which is also the home of former President Jair Bolsonaro, and resulted in the highest death toll ever recorded in a single police action in the state. The raid, which took place on Oct 28, aimed to execute around 100 arrest warrants targeting leaders of the Comando Vermelho criminal organization.

Overall, public security could in fact become Lula's Achilles heel in the 2026 elections as the topic is expected to be heavily leveraged by the right in a context in which violence and crime rank as the population's main concern, according to recent Atlas and Quaest polls. In Rio de Janeiro, a Quaest survey showed that most residents supported the governor's operation, which is unsurprising given the state's traditional right-leaning political profile (it is home to the Bolsonaro family). Amid Lula's rising popularity and the fragmentation of right-wing candidates vying for Bolsonaro's endorsement ahead of 2026, the fight against organized crime appears to be the glue that could unite Lula's potential opponents and is likely to become the main banner of the opposition's presidential campaign.

Lula, meanwhile, seeks to fight organized crime through more institutional channels, sending several bills to Congress to toughen penalties for crimes and expand the federal government's role in public security. In addition, the administration has focused on financially asphyxiating criminal organizations, such as by closing gas stations used for money laundering. Although less media-driven, this strategy has been more effective than large-scale police operations in Rio, according to several experts on the subject. However, in Brazil's current highly polarized political environment, effectiveness often takes a back seat to symbolism, meaning Lula's approach could politically undermine his reelection campaign, in our view. We believe it is still too early to assess the concrete impact of the operation on the government's image, but upcoming public opinion polls should indicate how Lula's criticism of the raid affects his popularity and provide clearer signs of how the security debate could shape his reelection bid.

PRI and MORENA clash in the House, break 2026 budget debate (El Economista)

MORENA and the opposition fight in the 2026 budget debate because of the murder of Carlos Manzo (Animal Político)

Deputies resume the discussion of the 2026 budgets after party blocs clash (La Jornada)

House to cut budget of the judiciary, the prosecution, the human rights' commission and the elections institute by a total MXN 17,788mn (Milenio)

Institutions and parties condemn the harassment suffered by Pres Sheinbaum (La Jornada)

Prosecution requests new capture order vs Fernando Farías, navy officer accused of fuel traffic (El Universal)

Authorities detain in Sinaloa a priority of the FBI, wanted for fentanyl traffic (Político MX)

Corn producers maintain road blockades in Pénjamo, Guanajuato (La Razón)

• Next MPC meeting: November 6
• Current policy rate: 7.50%
• EmergingMarketWatch forecast: 25bps cut

Almost all domestic analysts anticipate a 25bps policy rate cut on Thursday, according to a few consensus polls, including one made by Reuters and published on Friday, showing 24 of 25 experts polled agreed on this projection. Indeed, we agree with the market consensus in this regard, fully anticipating the CB will be cutting its policy rate over the next two sittings, barring any significant and unexpected development.

Data Download

This new cut will bring the policy rate to neutral territory, according to some analysts and the opinion of CB board members. However, although some in the board anticipated months ago that the plan was to hold the policy rate on restrictive territory, some are now defending entering this neutral range and maintain further monetary easing further, according to the Monetary Policy Council's (MPC) latest minute.

The ex-ante rate is somewhat pressured by increasing 12-month CPI inflation forecasts, in our view, noting they've increased by 0.22pps in Aug-Oct. Indeed, the next 12 months' CPI inflation forecast consensus stands at 3.87%, according to Banxico's latest poll among analysts. With the Monetary Policy Rate (MPR) at 7.50 and looking to fall by 50bps by year-end. Still, we doubt the bulk of the CB's board will ponder this much, considering on the dovish position assumed by the bulk of the board.

Only Deputy Governor Jonathan Heath is likely to oppose November and December easing, remaining the lone hawk in the board. We still wonder if Deputy Governor Galia Borja will toughen her discourse, perhaps agreeing to monetary easing but warning no further easing should come in early 2026, either because it's too early to bring the ex-ante rate too far from restrictive territory or warning of the lingering core inflation pressure.

In the regard to the last, we insist the CB should focus more on the pace of core inflation than on the pace of general inflation, considering transitory factors that will surely fade are currently keeping general inflation relatively under control. In this regard, we note core CPI inflation slowed to 4.24% y/y in October H1, adding 10 fortnights above 4.00%, and analysts expect core inflation to have closed the month at 4.27%.

Data Download

We believe this divergence between general and core inflation is the main debate to have in the Monetary Policy Council (MPC) in coming sittings, as the board ponders further easing. However, we see no appetite from the dovish side of the board to highlight lingering core inflation pressure.

All in all, we remain confident the CB will cut its Monetary Policy Rate (MPR) by 25bps in November, in a 4-1 vote. There is a possibility that a new 25bps cut in December comes from a 3-2 vote, if Borja leaves the dovish side of the board. However, we believe this is unlikely; indeed, we expect two 4-1 votes to close the year, bringing down the policy rate to 7.00%.

Given how dovish the majority of the MPC has been, we expect further easing in early 2026, even as inflationary pressures persist. Barring a surprising acceleration of CPI inflation, we anticipate the CB will cut its policy rate by 50bps in Q1, bringing it down to 6.50% by March-end.

Looking at Q1, it remains to be seen how the MPC will react to new inflationary pressures. We insist the 2026 budget is inflationary, raising taxes on sugary drinks, video games and tobacco, while cutting some exceptions (mostly for banks); this comes as the govt moves to impose tariffs on countries with which Mexico does not have a free trade agreement. The govt plan to again raise the minimum wage by 12% adds to this inflationary pressure, in our view. The MPC has not pondered these pressures, per the latest minute, except for Deputy Governor Heath. It remains to be seen if any other board member will recognize this looming pressure in the next two sittings. Still, once the pressure begins to materialize, it will be harder to turn a blind eye to this pressure.

Finally, we expect the MPC to highlight the Federal Reserve's recent easing. Indeed, the bulk of the MPC agree that the Fed's recent easing gives them room to continue their easing cycle. Even Deputy Governor Heath recognizes that the Fed is giving leeway to the dovish side of the board, considering that, in his view, there is no further room to cut the difference with the US.

Overall, we are confident the CB will cut its policy rate by 25bps in November, bringing down the policy rate to 7.25%. We fully expect the CB will vote for another 25bps cut in December and will cut its policy rate further in early 2026. How much easing comes in 2026 might depend on the Federal Reserve's actions and the dovishness of the kingmakers in the CB's board, as they continue to minimize core inflation pressures. Indeed, given the dovishness of the bulk of the board, we see the MPR falling to 7.00% by year-end, and to 6.50% by Q1-end.

• Sharp negative swing comes with across-the-board deterioration
• GFI falls 10.4% y/y in August, worse than expected
• Plunge comes with weakness in non-residential construction and all machinery and equipment investment
• Strong rebound in late 2025 seems unlikely to us, but a base effect should help statistically

Gross Fixed Investment (GFI) fell by 2.70% m/m in August, per seasonally adjusted data published by the stats office INEGI on Wednesday. This is quite a negative swing, fully erasing the July 1.37% m/m sa improvement. The m/m contraction came with across-the-board deterioration, headed by machinery and equipment, down by 3.13% m/m sa.

Data Download

Non-adjusted data show GFI down by 10.4% y/y, performing worse than the market anticipated. The decline came on the back of a 13.7% y/y plunge by investment in machinery and equipment and a 7.4% y/y dive in construction investment. The latter was in part offset by an 8.6% y/y improvement of residential construction. This resilience is notable, in our view, particularly posting such rapid growth despite reigning uncertainty and weak mid-term economic expectations.

Overall, investment has performed poorly throughout 2025. The deterioration of the business climate due to unsound policies by the government and power grabs by the MORENA regime that weaken the rule of law have been followed by global uncertainty, with the US imposing volatile protectionist polices, logically hindering investment. Thus, we believe a significant turnaround in the coming months is unlikely. Still, the GFI decline might slow on weaker comparison base from September onwards.

• Private consumption grows 0.1% y/y in August, holding on positive territory for the third month in a row
• Private consumption of domestic goods fell 1.1% y/y, pressured by durable and semi-durable goods
• Consumption of services and imported goods maintain positive dynamism
• Print raises hopes of more positive private consumption performance in Q3 than other indicators suggested

Private consumption rebounded by 0.64% m/m in August, per seasonally adjusted data posted by the stats office INEGI on Wednesday. This continues a long-standing trend of m/m volatility, with hikes and declines constantly following each other since late 2024. Still, the rebound is positive, fully erasing the July contraction.

Data Download

Private consumption grew by 0.1% y/y in August, barely holding on positive territory. Still, it's positive to see private demand remaining positive for the third time in a row, showing it probably had a positive contribution to economic activity in Q3, despite previous indicators suggesting otherwise.

The hike was hindered by the consumption of domestic goods, down 0.3% y/y in August. This was driven by a negative performance by the consumption of durable and semi-durable goods. Consumption of non-durable domestic goods, domestic services and imported goods, on the other hand, maintained positive dynamism in August and explained the month's positive print.

Overall, the private consumption print for August is positive, even though it shows modest performance. The fact private consumption remained in positive territory in both July and August y/y suggest it might have had a positive contribution in Q3, despite other indicators suggesting otherwise. Indeed, we remind INEGI's Q3 GDP preliminary estimate shows the service sector played a crucial role in offsetting a sharp contraction by the industrial sector. Thus, the performance of private demand in coming months will be crucial to determine the trend on which GDP will close the year, in our view.

• Foreign holdings include guarantees worth USD 23.7bn, CBE says in a footnote
• Foreign funds bought USD 29bn T-bills/bonds through local bourse since March 2024
• Despite surge of portfolio inflows, Egypt emerged largely unscathed from last two sell-offs
• Pound has appreciated since April on the back of strong portfolio inflows, tourism and remittances

The stock of T-bills held by foreigner investors rose by strong 8.2% m/m to a record-high EGP 2.12tn as of end-July (USD 44.8bn) following a 0.9% m/m drop in June, according to data published by the central bank (CBE). We attribute the sharp increase to returning foreign investors and the increase in holdings is in line with the strong purchases by foreign funds through the stock exchange during July. This is the stock of local currency notes only, so the m/m changes do not include FX rate effects. The CBE said that the foreign holdings include collaterals (contingent liabilities) worth USD 23.7bn at end-July under external financing operations. The stock of T-bills held by foreign investors jumped after the currency reform from March 2024 and was 43% of the total outstanding balance at the end of the review month, according to CBE data. Meanwhile, the T-bill holdings of foreign banks (branches) - another set of data we have been monitoring - soared by 42.2% m/m to EGP 59bn following a 28.2% m/m drop recorded in the preceding month.

Data Download

Egypt has recorded massive capital inflows since March 2024, and a large chunk of these inflows are portfolio investments into T-bills. The total purchases of foreign investors through EGX was EGP 1.39tn since March 2024, resulting in a total FX inflow of USD 28.8bn through the bourse (not accounting for roll-overs and maturities). Separately, the foreign investors bought around USD 8-10bn worth of T-bills directly from the banks, according to our calculations. While this massive inflow of hot money has raised the risks related to capital outflows and roll over risks, Egypt has largely emerged from the April and June sell-offs unscathed thanks to recent reforms and relatively large external reserves. Further, the FX market was liquid enough to accommodate smooth and orderly exit in April and June. The pound has appreciated since April, partly due to returning portfolio investors, tourism and remittance inflows and partly due to US monetary policy aimed at weakening the US dollar.

Data Download

Question:

Have you got data on insurance rates on shipping through the Suez Canal?

The question was asked in relation to the following story: Transit volume across Suez Canal edge down 0.8% m/m in October - IMF's PortWatch

Answer:

We could not find recent insurance rates, but our guess is that any decrease - if it exists - would be marginal. We think it all comes down to how sustainable the Israel-Hamas peace deal is. Despite some initial progress, the deal appears fragile at the moment. Even if it holds, however, most analysts do not expect a meaningful recovery in Suez Canal traffic for at least the next 4-5 months.

Qatari Diar to invest USD 29.7bn in Egypt's Mediterranean coast project (Ahram)

Emaar Misr, Saudi Dallah Albaraka seal USD 1.6bn deal to develop luxury residential project in New Cairo (Ahram)

Egypt parliamentary elections: Reform in motion or new faces reinforcing the status quo? (Ahram)

Hassan Allam Utilities, Infinity Power ink deals to deliver 1.2 GW of solar energy across Egypt (Ahram)

Standard Bank to open representative office in Egypt 12 November (Ahram)

IFC commits USD 60mn to support small businesses, job creation in Egypt (Ahram)

Egypt financial system remains resilient despite global challenges: CBE (Ahram)

Cairo to host Egyptian-Gulf trade, investment forum Monday (Zawya)

H&L to establish 1st South Korean project in SCZONE with USD 12mn investments (Zawya)

CBE Keeps Mortgage Rates at 3%, 8% for "Housing for All Egyptians" Initiative (Sada Elbalad)

Dollar Edges Up against Egyptian Pound to 47.48 (Sada Elbalad)

October marks return of 229 ships to Suez Canal (Egypt Today)

USD 44mn allocated to upgrading Egypt Upstream Gateway under extended agreement with SLB (Daily News Egypt)

Egypt announces new global oil, gas exploration bid in Red Sea (Egypt Business)

• Project is expected to bring USD 2.5bn in returns, according to EGX statement

The local subsidiary of UAE-based Emaar Properties, Emaar Misr has signed a EGP 78bn (USD 1.6bn) agreement with Saudi Arabia's Dallah Albaraka to develop a new luxury residential project in Katameya, New Cairo, Emaar said in a statement on the local bourse EGX. The project is set to cover 380 acres and generate a total return of EGP 117bn (USD 2.5bn). It forms part of Emaar's ongoing expansion in Egypt's high-end real estate market. Emaar Misr signed partnership contracts in September with the Egyptian government and City Stars to launch its latest flagship project, the EGP 900bn Marassi Red Sea, in the Red Sea governorate.

• Egypt will provide USD 26bn worth of land, bringing total value of the investment to USD 30bn
• Saudi Arabia and Kuwait plan to covert some of their deposits into direct investments

The real estate arm of Qatar's sovereign wealth fund, Qatar Diar has entered a partnership with Egypt's New Urban Communities Authority (NUCA) to develop a USD 30bn luxury project in Alam Al-Roum on the Mediterranean Cost, unnamed sources told the local press. The investment deal will be announced publicly on Thursday. Under the deal, Diar will pay USD 3.5bn in the coming days, while NUCA will contribute USD 26.2bn in in-kind investments to develop the project. The partners will reportedly include upscale residential areas, marinas, touristic amenities, and even government buildings and aims to turn the undeveloped area into a year-round tourism destination. NUCA will receive 15% of the revenues from the project going forward.

The project is part of a wider USD 7.5bn direct investment package pledged by Qatar, which also includes a USD 3.5bn direct investment into a Red Sea project between Diar and Marriott-owned hospitality chain St Regis. Meanwhile, Saudi Arabia said plans to convert some of its USD 10.3bn in CBE deposits into investments. Kuwait is also in discussions to convert the USD 4bn of CBE deposits into direct investments across several sectors. Egypt has set an ambitious target to attract USD 42bn in net FDI in 2025/26, with plans to increase that figure to USD 55bn in FY 2028/29.

• Deal marks ADNOC's first long-term LNG sales agreement with Shell

The Abu Dhabi National Oil Company (ADNOC) announced a 15-year sales and purchase agreement (SPA) with Shell International Trading Middle East, a wholly-owned subsidiary of Shell, for the delivery of up to 1mn tons per annum (mtpa) of LNG. The deal marks ADNOC's first long-term LNG sales agreement with Shell and the eighth long-term offtake agreement secured for the Ruwais LNG project.

With this latest agreement, more than 8 mtpa of the project's planned 9.6 mtpa capacity is now secured through long-term deals with customers across Asia and Europe.

The LNG will be primarily sourced from the Ruwais LNG project, currently under construction in Al Ruwais Industrial City, Abu Dhabi. Shell holds a 10% stake in the project through its subsidiary, Shell Overseas Holdings Limited.

ADNOC's Ruwais LNG project consists of two liquefaction trains, each with a capacity of 4.8 mtpa, totalling 9.6 mtpa capacity. When completed, it will more than double subsidiary ADNOC Gas' LNG production capacity to 15 mtpa.

The Ruwais LNG facility is distinctive for its use of electric-driven motors powered by clean energy sources instead of conventional gas turbines, making it one of the lowest-carbon intensity LNG projects worldwide. Commercial operations are on track to begin by the fourth quarter of 2028.

• Microsoft to export 60,400 Nvidia A100 chips to UAE
• Deal is first since Trump became 47th President of USA

Microsoft has secured export licenses from the Trump administration to ship advanced Nvidia AI chips, including the GB300 GPUs, to the UAE. This marks Microsoft as the first company since Trump returned to the White House in January to receive such licenses, allowing it to export of the equivalent of 60,400 Nvidia A100 chips, including the newer and more advanced GB300 Grace Blackwell GPUs, for use in AI and data centres in the UAE.

This export approval is part of a broader strategy to support the UAE's ambition to become a global AI hub.

Alongside the chip exports, Microsoft has committed to investing USD 15.2bn in the UAE between 2023 and 2029. This investment is focused on enhancing AI and digital infrastructure, including data centres and cloud services, as well as training local talent to support AI applications. Microsoft's investment plan is aimed at capitalizing on the high per-capita AI usage in the UAE and supporting the region's AI ambitions through partnerships, including one with the state-owned AI company G42.

The approval and investments reflect a significant technological partnership between the US and the UAE, reinforcing the UAE's position in the AI ecosystem while meeting security and technology safeguarding requirements imposed by the US Commerce Department.

Microsoft's roles include running data centres and facilitating access to AI models from OpenAI, Anthropic, and other providers, via these Nvidia GPUs.

The Nvidia chips mainly come from production facilities in Taiwan and the US and that the deal marks the first time such advanced AI chips are shipped to the UAE, positioning the country as a regional hub for AI technology.

This transfer is controversial because it contradicts public remarks by then-President Donald Trump that such advanced chips would not be exported outside the US, especially to countries with ties to China. The UAE's investments and compliance with US security standards were apparently decisive in securing the licenses.

We should note that US security hawks remain very concerned about the UAE's historically close ties to China and the risk of technology diversion. These people question whether the safeguards will be sufficient.

Microsoft invested USD 1.5bn in G42 in 2024, acquiring a minority stake and a seat on G42's board. Our understanding is that the USD 1.5bn is included in the USD 15.2bn amount mentioned above.

Separately, in 2024, the Microsoft and G42 also agreed to open two centres in Abu Dhabi. Microsoft is committed to an AI skilling initiative to train 1mn people in the UAE by 2027.

We should point out that the UAE's ambition to become a global AI hub is driven by a national strategy, massive sovereign wealth investments, and strategic partnerships with global tech giants.

In 2024, Abu Dhabi launched launched MGX, a state-owned investment vehicle created specifically to accelerate the development of AI.

In 2025, American AI company OpenAI launched Stargate UAE - the first international deployment of Stargate⁠, OpenAI's AI infrastructure platform. OpenAI will partner with the UAE to build a new Middle East data centre. The partnership includes two investments:

• A 1 gigawatts (GW) Stargate UAE cluster in Abu Dhabi with 200 megawatts (MW) expected to go live in 2026
• UAE investment into US Stargate infrastructure
  

This new cluster will be part of a 5 GW Abu Dhabi data centre that US President Donald Trump and Emirati President Mohammed bin Zayed announced in May 2025.

Here is a table about the UAE's state-supported AI ecosystem:

Finally, the UAE offers Golden Visas and incentives to attract global AI researchers and experts.

• Findings cite weak regulation and lapses under Petroleum Industry Act
• NNPC and CBN records show USD 81bn shortfall and USD 22bn unverified domestic sales
• Lawmakers urge stricter crude measurement standards and drone surveillance

The senate uncovered over USD 300bn in unaccounted crude oil proceeds between 2015 and 2023, according to an interim report by the senate ad-hoc committee on crude oil theft. Forensic investigations conducted with consultants in the UK, US and Canada arrived at the figure. The report blames systemic weaknesses, poor regulatory oversight, weak interagency coordination and the suspension of monitoring functions under the Petroleum Industry Act (PIA) for enabling large-scale oil theft. The findings were presented to the senate on Wednesday (Nov 5) and revealed major discrepancies between crude oil receipts and official records, including a USD 22bn mismatch in domestic crude proceeds and tax oil returns. The report also highlighted a USD 81bn shortfall between revenue figures reported by the Nigerian National Petroleum Company Limited (NNPC) and those recorded by the CBN for 2016 and 2017.

In its recommendations, the senate urged the government to empower the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to enforce international crude measurement standards or reinstate the Weights and Measures Department with modern technology. It also called for the deployment of drones and advanced surveillance systems to curb theft, as well as for government to establish a special court to prosecute oil-related crimes. The report further recommended that abandoned oil wells be transferred to modular refineries to boost domestic refining capacity.

• AFRICOM proposed three options to Department of War: heavy, medium and light
• Heavy plan includes deploying an aircraft carrier and launching airstrikes
• Medium option centers on drone strikes against militant camps and convoys
• Light approach involves supporting Nigerian forces in joint operations

According to a report in The New York Times, the US military has developed contingency plans for potential action in Nigeria following Donald Trump's directive to prepare for strikes over alleged persecution of Christians. The US Africa Command (AFRICOM) presented three options (heavy, medium and light) to the Department of War. AFRICOM's plans follow president Trump's decision to designate Nigeria as a 'country of particular concern', a move that suspends US arms sales and technical cooperation. The heavy option reportedly involves deploying an aircraft carrier group to the Gulf of Guinea and launching airstrikes deep inside northern Nigeria.

The medium option centers on drone strikes against militant camps and convoys, while the light option focuses on supporting Nigerian forces through joint operations targeting Boko Haram and other insurgent groups. Officials say the main goal is to neutralize Islamist militants and end the country's protracted insurgency. The light option faces obstacles since the Trump administration dissolved the US Agency for International Development (USAID) which had been an important partner in coordinating operations with Nigerian forces.

Trump accuses the Tinubu administration of allowing the mass killing of Christians. However, experts and military officials have raised concerns about the complexity of Nigeria's conflict, which involves overlapping ethnic, religious and economic factors. Violence in the Middle Belt often stems from land disputes, while jihadist groups such as Boko Haram and ISWAP have targeted both Muslims and Christians indiscriminately. Analysts warn that US strikes could inflame tensions rather than resolve them. Nigeria's foreign affairs minister Yusuf Tuggar said on Wednesday that the government is engaging with the Trump administration to clarify Nigeria's constitutional protection of religious freedoms amid efforts to combat Islamist militancy.

Stop exporting crude, OPEC tells Nigerian producers (Punch)

NNPC to feed P'Harcourt refinery's stranded power to grid (Punch)

Christianity facing existential threat in Nigeria, Trump insists (Punch)

15% fuel import duty will hurt Nigerians, says TUC (Punch)

Ondo signs $50bn refinery, free trade zone deal (Punch)

MAN Declares Support for 15% Import Tariff on Petrol, Diesel (ThisDay)

PenCom To Diversify Pension Asset Investments To Boost Returns, Says DG (ThisDay)

Senate Uncovers $200bn Unaccounted Crude Oil Proceeds, Approves Report On Oil Theft Probe (ThisDay)

Eurobonds: Nigeria raises $2.35 billion after record $13 billion investor demand (Nairametrics)

US Military drafts Nigeria strike plans after Trump directive (Nairametrics)

SEC DG: Nigeria's non-interest capital market now worth N1.6 trillion (Nairametrics)

• Latest Eurobond issuance drew USD 13bn in bids
• DMO said deal was Nigeria's largest-ever orderbook
• Issue comprised USD 1.25bn (10-year) and USD 1.1bn (20-year) tranches

Nigeria's USD 2.35bn Eurobond issuance on Wednesday (Nov 5) attracted total bids worth USD 13bn, reflecting an oversubscription of 453% or USD 10.65bn. The strong investor demand came despite US president Donald Trump's recent designation of Nigeria as a "country of particular concern" over alleged religious persecution and his threat of military action if the violence continues. The robust response highlights continued investor confidence in Nigeria. According to the Debt Management Office (DMO), the Eurobond offering attracted participation from the United Kingdom, North America, Europe, Asia, the Middle East and Nigeria, marking the country's largest-ever orderbook. Demand came primarily from fund managers, insurance and pension funds, hedge funds and banks.

The DMO said the issuance comprised two tranches: a USD 1.25bn 'long 10-year' bond maturing in 2036 and a USD 1.1bn 'long 20-year' bond maturing in 2046. They were priced at coupon rates of 8.625% and 9.125%, respectively. The 10-year tranche recorded demand worth USD 4.9bn against an issue size of USD 700mn (seven times the offer) while the 20-year tranche saw bids exceeding USD 4.2bn for a USD 1.5bn issuance. The bonds will be listed on the London Stock Exchange, FMDQ Securities Exchange and the Nigerian Exchange Limited. Proceeds from the sale will finance the 2025 fiscal deficit and refinance USD 1.1bn of maturing Eurobonds later this month.

• International demand remained firm
• Climate events and pricing competition hurt domestic business prospects
• Outlook remains positive, but business sentiment has lost some shine

India's services sector growth softened in October 2025, even as business activity and new orders continued to expand at a healthy pace, supported by demand buoyancy and GST relief, according to the HSBC India Services PMI survey. Services PMI slipped to 58.9 from 60.9 in September, indicating the slowest rate of expansion since May, though remaining well above the long-run average of 54.3.

Data Download

Survey participants reported that lower price pressures, improved client inflows, and successful marketing sustained output, but growth was constrained by intense competition and heavy rains that disrupted operations in parts of the country. While new business continued to rise strongly, the pace of growth was the weakest in five months. Firms attributed this moderation to floods, landslides, and pricing competition.

Encouragingly, international demand for Indian services remained firm, marking another month of growth in external sales, although the pace of expansion was the slowest since March. Companies reported greater inflows of business in technology and professional services.

Meanwhile, price pressures showed significant relief in October, with input costs rising at the slowest pace in 14 months, helped by the GST reform. Firms cited modest increases in fruit, vegetable, and construction material costs, while many noted stable prices elsewhere. As a result, output charge inflation eased to a seven-month low, with fewer than 5% of firms raising prices.

Looking ahead, service providers remained optimistic about future activity, buoyed by expectations of strong demand, advertising plans, and competitive pricing strategies. However, overall business sentiment slipped to a three-month low, reflecting lingering caution amid weather disruptions and global uncertainties.

Following the Services PMI trend, the combined momentum of India's manufacturing and services sectors also eased. The HSBC India Composite PMI Output Index fell to 60.4 in October from 61.0 in September - the weakest since May. The slowdown was concentrated in services, while manufacturers registered quicker expansion. Across the private sector, input cost inflation moderated to its lowest level since August 2024, and output charge inflation eased to the weakest since June, signalling broader price stability. Despite this moderation, the survey noted that growth remains robust, reflecting India's strong domestic fundamentals and resilience amid global headwinds.