• The finance ministry sold CZK 1.2bn of bonds from its portfolio
• Gross financing needs were covered at 64.6% as of Nov 7
• If we assume that operations with financial assets will be neutral in 2024, the cover ratio is about 72%

The finance ministry topped up the government bond auction on Nov 6 by CZK 35mn, according to data from the CNB. It didn't lead to any major changes, though technically the borrowed amount is now CZK 1.2bn, more than twice the borrowing ceiling of CZK 0.5bn. It puts bond issuance to 6% of the borrowing ceiling in November, and at 46% of the Q4 ceiling. Yet, the big bond auctions in November are yet to come, as the finance ministry will offer CZK-denominated bonds for CZK 20bn, and an EUR-denominated one for EUR 500mn later this month. The finance ministry also sold CZK 1.2bn of bonds from its portfolio.

Based on the information above, we estimate that the issuance of debt instruments that mature after the end of 2024 reached CZK 333.8bn as of Nov 7. The amount breaks down to:

• CZK 255bn in CZK-denominated bonds;
• CZK 62.6bn in net bond purchases to the issuer's portfolio;
• CZK 4.5bn in CZK-denominated T-bills;
• CZK 37.8bn equivalent of EUR-denominated debt instruments (original value of EUR 1.5bn);
• CZK 4.7bn in retail bonds (data for January-September);
• CZK 8bn in loans (data for January-September);
• a net outflow of CZK 38.8bn in operations with financial assets (data for January-September).

Gross financing needs were revised upwards to CZK 516.7bn, meaning that they were covered at 64.6% as of Nov 7. We should note that our estimate is strictly unofficial, and we don't have up-to-date numbers for the last entries. Operations with financial assets tend to vary the most, and we expect them to be close to zero during the entire year, as envisaged in the 2024 budget law. It effectively means that gross financing needs were covered at more like 72%, though at this point, we can only provide an educated guess.

• Reserves increased by EUR 9.1bn over the past 12 months
• They covered 9.6 months of imports and reached 44.1% of GDP at end-October
• Gold reserves continued to rise in Q3 2024, as communicated officially by the CNB
• Earnings on reserve management reached an impressive 11.31% over the past 4 quarters
• The CNB sold EUR 300mn in the fx market in September, in line with its programme of selling earnings from reserve management

The official reserves of the CNB fell by EUR 758mn (0.5% m/m) in October, down to EUR 137.3bn at the end of the month, according to data from the central bank. This time, there was some exchange rate effect in play, as the US dollar strengthened against other currencies, though there were also some debt amortisation and other payments on the ledger. Still, the decline is a relatively small one, and within the normal. There was no major revision of changes in September, when official reserves rose by EUR 241mn (0.2% m/m), up from an EUR 220mn increase initially estimated. In year-on-year terms, official reserves increased by EUR 9.1bn (7.1% y/y).

Data Download

Reserves covered 9.6 months of imports at the end of October, a level seen since early 2024. While it is not at pre-pandemic levels, when reserves covered about 11 months of imports on average, the cover ratio is still high. One could argue that the CNB doesn't truly need that high a level of reserves anyway, and it has been the reason the CNB launched a programme to unload earnings on reserve management. Official reserves also reached 44.1% of GDP at end-October (we use the finance ministry's forecast), which is considerably higher than the reserve level among CEE peers, where it usually stays in the 25-30% of GDP range.

The CNB also published its Q3 report on reserve management and structure. As communicated officially, the CNB continued to increase its gold reserves, whose share reached 2.8% in Q3 2024, up 0.5pps q/q and 1.7pps y/y. This was largely to the expense of EUR-denominated assets, which fell by 0.8pps q/q and 0.7pps y/y. EUR-denominated assets still dominate the reserve composition, however, at 48.8% of the total, followed by USD-denominated assets at 29.9%. The other notable currencies in the reserve mix were the CAD (7.6%), the AUD (4.1%), and the GBP (3.7%). No other currency holds more than a 2% weight, and the CNB has continued to avoid CNY-denominated assets, holding none as of Q2 2023. Reserve management remains very profitable, as the earning rate on the investment part of reserves reached 13.21% over the past 4 quarters, while the liquidity portion earned 4.16%. The total earning rate on official reserves was 11.31% over the past 4 quarters, much higher than the 2.74% reported over the past 3 years, for example. The CNB invests primarily in bonds (54.5%), equity (22.3%), and money market instruments (20.8%), the latter largely overlapping with the liquidity portion of reserves.

Finally, the CNB sold EUR 300mn of its reserves in the fx market in September, according to fx trading data. The amount is exactly at the monthly cap of the programme on selling earnings from reserve management. Considering how earnings have increased recently, we expect that fx sales will be at the cap for some time. We remind that CNB resumed the programme last August, after it launched at the beginning of 2022. However, the CNB had to defend the CZK from market fluctuations around the middle of 2022, mostly related to the drama of appointing the current CNB board. The CNB sold EUR 2.6bn in January-September, and EUR 3.5bn over the past 12 months. As it can be seen from reserve dynamics, it has not affected reserve levels meaningfully.

Question:

Regarding 'Finance ministry borrows CZK 1.1bn(...)' Table reads 15% avg yield and 10% prev avg yield for local currency bond auction. Curious to how this is calculated and what it means exactly.

The question was asked in relation to the following story: Finance ministry borrows CZK 1.1bn through a bond, EUR 500mn through a T-bill

Answer:

The number you see is not actually a yield, but the average discount margin, measured in basis points. The reason is that this is a floating-rate note, so the yield will vary, which is why the margin is provided in the yield entry. Moreover, discount margins may be negative, and that was the case for Czech FRNs before the recent crises.

• Markets expected an increase of 5.5% y/y
• Non-food sales reported a solid increase of 8.2% y/y, but it is mostly due to a low base
• There was less distortion with food sales data, and we expect non-food sales growth to ease to that level in Q4
• We expect that retail sales growth will be visibly more muted in Q4 2024, and end up below official expectations

Retail sales, excluding vehicles, reached 5.6% y/y (wda) in September, picking up from a 5% y/y increase in August (revised from 5.3% y/y), according to figures from the statistical office. The print was in line with expectations, as markets anticipated a 5.5% y/y increase. Retail sales also preserved a modest month-on-month increase, up by 0.2% m/m (sa). We remind that the solid increase still features a low base from 2023, as in absolute terms, retail sales reached current levels in Q4 2023. Thus, we are likely to observe a much slower increase in year-on-year terms from here on.

Data Download

The low base was the most evident with non-food sales, whose growth picked up from 6.9% y/y in August to 8.2% y/y in September. Considering that non-food sales improved visibly in Q4 2023, however, we will likely see an increase within 2-3% y/y in October at most, if not worse. The biggest improvement was seen with textile, clothing, and footwear, where sales rose by 9.8% y/y, and in cultural and recreational goods, whose sales increased by 3.7% y/y, the strongest rate since January. However, household equipment sales deteriorated, falling by 2% y/y after two months of increase, and IT & communication equipment sales were up by only 0.2% y/y. The distortion was less pronounced with food & beverage sales, which rose by 2% y/y, easing by 0.1pps m/m. Food sales have not reported as many fluctuations, mostly due to being not so elastic, and this is what we expect to see with non-food sales as of Q4 2024 onward. Fuel sales eased their growth to a still solid 5.3% y/y, reflecting a decline in fuel prices that month.

Thus, even though retail sales rose by as much as 5.1% y/y in Q3 2024, we find that increase as a bit misleading. We have seen many remarks how household spending is recovering fast. While we don't deny the improvement, our argument is that it is not as strong as implied by year-on-year changes, and that it will likely end up below official forecasts. The finance ministry has already downgraded its expectations about household consumption growth in 2024, and we expect the CNB to do the same when its new staff forecast is out (a summary is due today, and the full forecast - on Friday). Our point is that we don't see the retail print as an indicator of stronger underlying inflation pressure. It doesn't mean the CNB board will interpret it that way, of course, but we expect recovery to become visibly more muted in Q4 2024.

• He got the support of more than two thirds of committee members

Jozef Sikela, until recently the Czech industry minister, has reportedly received the endorsement of the European Parliament to become an EU commissioner, according to various media sources. Sikela's confirmation hearing took place on Wednesday (Nov 6), and while the result was not made public, he reportedly got more than two thirds of the committee's votes. Sikela will be responsible for international partnership, and he emphasised on the need for the EU to extend its alliances globally. He also outlined efforts to reduce illegal migration to the EU, which, in his opinion, can happen the most effectively through co-operation with non-EU countries. There were some remarks that Sikela was not that well versed with the EU's development projects in Africa, but apparently it will not be a major obstacle.

The confirmation hearings of commissioner designates will continue until next Tuesday (Nov 12), when the five EC vice presidents will be heard. The European Parliament is scheduled to declare the hearings concluded on Nov 21. A plenary vote for the entire new European Commission is set for Nov 25. Provided that all candidates are confirmed, they will take office as of Dec 1.

Trump's historic triumph: business prepares for tariffs, Czech [industry] ministry doesn't see a threat (Hospodarske Noviny)

He defeated the system that was driving him to prison. Trump to avoid arrest and punishment because he won (Lidove Noviny)

Great comeback [of Donald Trump] (Mlada Fronta Dnes)

Great Trump comeback (Pravo)

American wallet decides the election. Trade wars and tax cuts to come with Trump (E15)

Solar arbitration is back (Hospodarske Noviny)

North Korea is with Russia, we are with Ukraine. South Korea doesn't rule out weapon deliveries (Mlada Fronta Dnes)

A rough fall. Czech crown weakens after US elections (Pravo)

German government is breaking apart. Scholz to ask for a confidence vote in January (E15)

We defy the wind, rain ... and the price of butter (Lidove Noviny)

• Auction confirms weak demand at short end of yield curve

The State Debt Management Agency (AKK) sold HUF 8.0bn of twelve-month T-bills on the latest primary auction, according to AKK data. The issued amount fell short of the announced auction size of HUF 20.0bn because of weak demand. Total bids stood at just HUF 9.8bn and failed to cover the offered volume of T-bills. The development confirmed the decline in demand in the short segment of the curve, which started at the three-month T-bill auction last week. We think the AKK might be forced to revise down its T-bill issuance plans in response. The twelve-month average yield rose by 17bps from the previous auction two weeks ago to 5.59%. It was also 8bps higher than the secondary market benchmark rate.

• Non-residents show increased interest in domestic forint bond market
• Stock of government securities rises by 1.3% m/m on net issuance, revaluation gains

The central government issued net HUF 360.6bn of securities in September, according to data by the National Bank of Hungary (NBH). Net issuance was similar to the previous month and was slightly lower than the average monthly issuance in the year so far. It included mostly forint-denominated bonds and T-bills, while net forex issuance was negative at HUF 186.1bn in the month. We note that the government floated a Samurai bond issue in September, worth around EUR 500mn, but it was more than offset by the maturity of other government forex bonds during the month. Domestic banks and households were the main government security buyers. Non-residents registered a small HUF 33.3bn net divestment in the month as the forex bond expiries offset the new forex bond issues as well as increased interest on the domestic bond market. The share of non-residents in the total government security stock fell m/m to 31.5% at end-September, while their share on the domestic bond market rose m/m to 15.2%.

Data Download

Data Download

The total stock of government securities rose by 1.3% m/m to HUF 50,689.8bn at end-September. The increase reflected the net issuance during the month as well as high positive revaluation effects. The revaluation effects accrued on the domestic forint bonds and the forex bonds, in our opinion stemming from the fall in domestic bond yields and the forint exchange rate depreciation.

The total stock of securities issued by residents amounted to HUF 104,339.8bn and increased by 1.2% m/m at end-September. Positive net issuance by the government and the investment fund sector was partly compensated by the expiry of discount bills issued by the NBH. Revaluation effects also boosted the security stock during the month, reflecting gains on the stock exchange and higher returns on investment funds' portfolios.

• Seasonally-adjusted retail sales fall by 1.4% m/m, partly due to flood
• We think data suggests no significant rebound in household consumption
• Non-food sales strengthen, in our view giving encouraging signals about spending propensity

Retail sales growth moderated to 1.7% y/y in September, down from the 4.1% y/y growth in the previous month, the statistical office (KSH) reported. This was the weakest performance of the sector since February and we consider it confirmation of the fragile nature of the household consumption recovery. Seasonally-adjusted retail sales were down by 1.4% m/m in September, but we think the overall trend of the adjusted series remained rather flat since the beginning of the year. The flood situation partly contributed to the m/m contraction of the seasonally-adjusted retail sales in the month, the KSH noted.

Data Download

Data Download

The deterioration in the retail sales dynamics, on both m/m and y/y basis, was mostly on account of food sales though. We accordingly consider it likely that the stronger retail sales print in August could be due to foreign tourism, while the seasonal dip and the impact of the flood on tourism affected negatively the retail sector in September. This assumption, however, also implies that there has been no material rebound of domestic consumption so the fading of the flood factor might not bring significant improvement in consumption levels in the next months, in our view. On the other hand, the economy ministry commented in reaction that tax office data from cash registers showed strong retail sales in October, similar to August.

Data Download

Retail food sales rose by 1.5% y/y in September and their growth decelerated significantly compared to the exceptional 7.6% y/y increase in the previous month. Apart from foreign tourism, we think the swings in food sales might have been influenced by temporary fluctuations related to the phase-out of the mandatory discount campaigns in supermarkets, so food sales could stabilise at more moderate growth in the short term. Fuel sales also weakened, falling at a deeper 5.0% y/y rate during the month, which we attribute to the flooding situation.

Conversely, non-food sales rose by 5.7% y/y in September and showed a steadily improving pattern. The growth in the segment was the highest since May 2022 and we think it confirmed the strengthening of consumer spending propensity, along with the recent pick-up in consumer loan borrowing. The higher non-food sales were on account of sales in non-specialised shops and clothing. Sales of consumer durables slowed but maintained relatively solid growth in the month, while sales of electronics returned to the negative territory after a temporary break.

Leaders of Western world gather in Budapest in search of peace and competitiveness (Magyar Nemzet)

PM Viktor Orban has already spoken with re-elected Donald Trump (Magyar Nemzet)

After Trump's victory, panic breaks out in programming group of Tisza Party (Magyar Nemzet)

Government has made important progress in relation to one of main objectives of Hungarian EU Presidency with EU tax agreement (Magyar Nemzet)

GKI: Real estate is at unaffordable level (Vilaggazdasag)

What will happen to Hungarian economy after Donald Trump's victory? (Vilaggazdasag)

Special domestic mineral resources promise breakthrough (Vilaggazdasag)

Tisza Party leder Peter Magyar organises conference on women's rights, but there was no response (Heti Vilaggazdasag)

PM Viktor Orban also speaks on the phone with Donald Trump and says they have big plans (Heti Vilaggazdasag)

• Next MPC meeting: Nov 19, 2024
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold
• Rationale: NBH increasingly concerned with financial market volatility and points to increased risks to domestic inflation outlook

The MPC shifted its caution up a notch with its October rate decision, announcing a pause of the rate-cut cycle. Previously, the MPC was expected to implement at least one more 25bps rate cut by the end of this year. National Bank of Hungary (NBH) deputy governor Barnabas Virag had started to prepare the ground for the monetary policy shift some weeks before the October MPC meeting, warning that rate cuts should not be expected not only for October, but also for the following months, because of geopolitical tension and financial market volatility. Uncertainty regarding the policy loosening path of major central banks has increased as well, Virag noted. The NBH seemed specifically concerned with the renewed downward pressure on the forint lately and we think this was the primary reason for putting the rate-cut cycle on hold in October. NBH deputy governor Csaba Kandracs also highlighted higher risk aversion towards emerging markets during a background discussion after the October MPC meeting and stressed that the NBH was closely monitoring the forint exchange rate, reiterating earlier NBH research that the exchange rate pass-through to inflation has increased lately. In addition, Kandracs pointed to rising inflation risks despite that inflation developments so far were entirely in line with the NBH expectations. Kandracs in particular pointed to inflation expectations stuck at high levels and noted the recent rise in core inflation as signs for elevated risks for the inflation outlook.

Data Download

Data Download

The MPC gave no particular guidance regarding the expected length of the pause to the rate-cut cycle. It signalled that policy decisions will remain guided by a cautious and patient approach and by incoming data. Kandracs also confirmed that the policy rate will be determined on a month-by-month basis, but we think he also clearly indicated that there will be no rate cuts in the immediate future. The MPC is not afraid of keeping the policy rate constant for an extended period of time, if necessary, he said during the background discussion. He also suggested that rate hikes were not likely either, emphasising several times that the MPC considered its current reaction of pausing the monetary easing cycle as sufficient response to the heightened financial market and price stability risks. In this context, we expect that the NBH will keep the policy rate unchanged at least by the end of the year despite the recent sharp forint depreciation. We think the NBH might also adopt a wait-and-see stance to monitor whether the financial market volatility will be temporary and ease after the US elections. The MPC meeting in October also suggested some dissatisfaction with short-term yields and market volatility, in our view, as it announced the re-introduction of longer-term liquidity sterilisation tools in December for the purpose of enhancing the monetary transmission mechanism. These measures might also be meant to counter the temporary financial market volatility before opting for a rate hike, in our view.

The MPC decision to keep the policy rate unchanged in October was unanimous and there were no other proposals on the agenda, Kandracs revealed. We think this shows strong cohesion in the MPC despite the reshuffle with two new external members joining the MPC earlier this year. The situation could change as of Apr 2025 though with the pending appointment of a new NBH governor as the second mandate of Gyorgy Matolcsy will expire and he will not be eligible for another term.

Post-meeting MPC statement from October rate-setting meeting

Presentation of Csaba Kandracs on press conference after October MPC meeting

Minutes from October rate-setting meeting

Latest Inflation Report - Q3/2024

MPC meeting calendar 2024, 2025

• Pause likely to be protracted, we do not expect rate hike in response to current market volatility
• MPC sees need to smooth out market fluctuations at year-end to support monetary transmission
• MPC warns with weaker investor sentiment, rising risks for domestic inflation outlook

The MPC voted unanimously to keep the policy rate unchanged at 6.50% on its rate-setting meeting in October, according to the minutes of the meeting published by the National Bank of Hungary (NBH). Earlier, NBH deputy governor Csaba Kandracs had revealed that this proposal was the only one on the table, in our opinion suggesting cohesion in the MPC regarding the need to stop the policy rate cut cycle. All eight attending MPC members supported the proposal, while deputy governor Barnabas Virag was absent since he was travelling for the IMF and WB meetings in the US at the time. The pause in the rate cut cycle was necessitated by volatile financial markets, geopolitical tensions and pro-inflationary risks, the MPC explained. We think its wording suggested that the pause was likely to be longer than just the month of October. Otherwise, it maintained the rest of its policy guidance, saying that rate decisions will be taken on a month-by-month basis depending on incoming data. The MPC maintained its commitment to keep the real interest rate positive and to follow a careful and patient approach to monetary policy.

Data Download

Data Download

The meeting minutes reminded the MPC decision to employ its non-rate instruments for smoothing out temporary financial market volatility in December. Specifically, the MPC planned to offer instruments with longer maturities in December, in addition to holding daily, one-day forex swap auctions and weekly discount bill auctions. The measures will correspond to the usual practice of the NBH to focus on the forex swap market at the end of the year and to foster the effectiveness of the monetary transmission channel by ensuring that short-term interest rates align with the policy rate on each market segment, the MPC explained.

We therefore expect that the MPC means to keep the policy rate flat in the short term and we believe that this outlook has not changed despite the recent steep depreciation of the forint exchange rate. The MPC will adopt a wait-and-see approach to see whether the financial market volatility is resolved after the US elections, after which it will probably rely on its announced non-rate tools to prevent further forint weakness. We do not expect a rate hike unless the depreciation trend continues persistently in the rest of November and December. As we reported, Kandracs had said that the MPC considered keeping the rate flat as a sufficient reaction to the market volatility and in an implicit manner practically ruled out a rate hike under the foreseeable circumstances.

The domestic inflation outlook was in line with the forecasts of the latest Inflation Report of the NBH, the MPC said. The outlook was still subject to increased upside risks because of worsening investor sentiment and volatile commodity prices. In addition, some MPC members pointed to the recent rise in inflation expectations and the slow disinflation in market services, requiring close monitoring of price trends in this segment. The risks to investor sentiment were also related to slower easing of the external interest rate conditions compared to earlier expectations and policy rate decisions of major global central banks were rather uncertain, the MPC explained.

America has firmly bet on Trump [front-page] (Rzeczpospolita)

American chooses: We are going into unknown [front-page] (Gazeta Wyborcza)

Dollar strength and tariff wars [main threat abroad seems to be to Germany, which will hit Poland; Trump will also force EU to hike defense spending] (Rzeczpospolita)

Trump 2.0 will bet firmly on tariffs and immigration (Rzeczpospolita)

Whites, uneducated, Catholics, Latinos, these are who gave Trump victory (Gazeta Wyborcza)

Trump triumphs, zloty falls (Rzeczpospolita)

How EU is preparing for change of values in Washington (Rzeczpospolita)

Arms industry is rubbing its hands with glee [Trump promoted arms sales, but we note that restrictions on use of US weapons and collab with Putin could cool demand] (Rzeczpospolita)

PiS believes in change [party warmly greets Trump win; hopes to focus on 'identity' issues and lack of fulfillment of promises by incumbent to win PL election; as for KO, Trzaskowski still is frontrunner to be candidate, but Sikorski still hoping new reality will improve his chances] (Rzeczpospolita)

Rates unchanged (Rzeczpospolita)

Constitutional Tribunal attacks Sejm's correspondence election probe (Gazeta Wyborcza)

In Poland we have 1mn landlords now (Gazeta Wyborcza)

• Ministry clarifies this does not mean deals for construction of 2nd nuclear power plant

Poland's Industry Ministry confirmed Wed. that it and a Japanese delegation would sign on Thurs. a broad cooperation deal in the field of nuclear energy. The Japanese business daily Nikkei reported earlier Wed. that such a deal would be signed in the coming days, raising speculation this would concern the construction of a second nuclear power plant (the first is to be built in line with a deal with Westinghouse). But the Industry Ministry said that the deal does not mean the conclusion of agreements related to the construction of a second nuclear power plant.

It clarified that the memorandum of understanding will concern, among others, cooperation at the level of economic entities and industrial technologies. It will also include the exchange of information, organization of workshops, social communication on nuclear safety, and technological support. Cooperation will allow for the development of nuclear skills and competences, which is crucial for the implementation of the Polish Nuclear Power Program, the ministry said.

Overall, it is unclear if the deal to be signed on Thurs. will help pave the way to the building of a second plant. In all probability, any signature with a non-American company or group would be advisable since US trade and foreign policy is very unpredictable these days. If the US does slap massive tariffs on imports from Europe, Poland could be in position to have to retaliate, perhaps undermining or delaying the Westinghouse deal, though the country will want to push ahead since it dearly wants a source of cheaper power to coal.

• MPC says inflation will return to target in medium term
• But it adds that energy continues to be uncertainty, as are regulatory policy, labour market, economy
• NBP's new projection cuts inflation view for 2024 and 2026 but raises it for 2025
• New projection lowers GDP growth trajectory across the board
• MPC continues to be likely to keep rates on hold till Q2 2025

Poland's Monetary Policy Council held interest rates on Wed., as all expected, and said it did so as inflation remained elevated and would likely rise further in early 2025, though it would eventually slow towards the target range in the medium term, according to its post-sitting statement. The MPC said that inflation is now boosted by energy prices and other regulatory factors as well as high wage growth, though demand and cost pressures remain relatively low. The previous appreciation of the zloty also helped cap inflation. Going forward, inflation will rise due to a further increase in energy prices in early 2025, with the impact of these increases on inflation expectations an uncertainty. Other uncertainties are fiscal and regulatory policies, the economic recovery, and labour market conditions, the MPC said.

The council did say that when the effects of the energy price increase fade and amid the expected slowdown of wage growth, inflation should return to the medium-term NBP target. It added that the current level of NBP interest rates is conducive to meeting the inflation target in the medium term, with these a key phrase in whether the council is preparing to change policy.

The MPC also approved the updated NBP Inflation Report (to be published in full on Fri.), including a CPI projection that holds for a mixed view and a GDP projection that lowered its entire growth trajectory. The new CPI projection -- with flat rates -- sees a 50% chance that inflation will be 3.6-3.7% in 2024, generating a mid-point of 3.65%. That is down slightly from 3.70% in the previous projection published in July. For 2025, the mid-point was raised to 5.40% on a 4.2-6.6% range and from 5.25% (range: 3.9-6.6% in July). That likely involves higher early 2025 inflation, though the NBP said it chose a no-policy change assumption, and the current policy is that the power-related anti-inflation measures will all end at end-2024. In light of the government having said it will continue to counter higher power prices, the NBP said that the probability of inflation running below the central path in 2025 is higher than the probability of inflation running above it. For 2026, the mid-point is 2.75%, which is up slightly from 2.70% before. This is at-range and suggests inflation in 2026 will still fall into the target range.

For GDP, the new projection lowered the mid-point for growth in 2024 to 2.70% (range: 2.3-3.1%) from 3.00% in July (range: 2.3-3.7%). The latest weak economic data have clearly had an impact. For 2025, the new mid-point forecast is 3.35%, well down from 3.80% in July. The 3.8% in July was close to the government's 3.9%, but the November projection suggests the NBP is much more pessimistic about growth next year. This could put further pressure on fiscal policy. For 2026, the new mid-point is 2.85%, down from 3.10% in July, and clearly suggesting growth is set to slow after the EU fund-boosted 2025.

Overall, the new inflation and GDP projections don't look likely to have a major impact on the interest rate outlook, which is still that the MPC will be in position to ease policy in Q2 2025. However, there are so many uncertainties, not least of which is how the US election result impacts Europe and Poland in particular. The downgrade of the economic growth forecasts for Poland do suggest lower inflation pressure from domestic factors and that could favour faster rate cuts or perhaps deeper ones at the beginning. If one keeps in mind that the weakness of the German economy is already a big problem for Poland and the fact Trump's policies can only hurt Germany more, the outlook for the Polish economy is probably even worse. On the other hand, EU funds will help buoy growth next year.

As for inflation, the 2025 forecast has been increased, although it doesn't seem likely that it will be a reality since the government has pledged to continue anti-inflation measures for electricity in some capacity. This will likely mean the inflation projection for 2025 is closer to the ones released in July and that would mean the whole inflation trajectory has in fact been held or reduced. That would be favourable for easing. In the end, the MPC simply won't know about March inflation -- when the tobacco excise hikes go into effect -- until early April and won't have final January or February inflation when it decides rates in March. That means, the first realistic month for rate cuts is April. Whether they happen then or later will depend on a host of factors, but we imagine an April cut remains likely.

• Decision matches consensus
• 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 chose Wed. to maintain its benchmark interest rate at 5.75%, matching the consensus in the twelfth straight hold, according to a statement. The MPC will publish its post-sitting statement at 16:00 CET. NBP and MPC head Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the decision. The MPC will release the main CPI and GDP projection ranges in its post-sitting statement.

Overall, the MPC has indicated it will not cut rates while inflation is high and potentially rising amid major uncertainty. The government has still not released its plans for power prices for 2025 and so there is still a chance they could rise in January, which would give a further boost to inflation. Tobacco excise taxes will rise from Mar 1, 2025, and that will add to inflation as well. In this context, the MPC is likely to be cautious and will put off discussion of rate cuts until next March, when the inflation and GDP projections are next updated. The Trump win will likely work against rate cuts since higher likely inflation in the US will argue against cuts in Poland, though it is possible that lower growth outside of the US will undermine demand and help keep inflation in check. Still, Trump is bad for the PLN and it has weakened of late, which is not good for inflation either. This means the outlook is still not for policy easing until at least Q2 2025.

Data Download

• MPC will release main inflation and GDP projection ranges in post-sitting statement out Wed.

The NBP will publish the full November Inflation Report on Fri., according to a statement from the central bank. The report will be published on a day that the NBP will hold a presentation of the report, which starts at 12:00 CET. One imagines the report will be published on its website at the time.

Overall, the updated November Inflation Report will be important for monetary policy, though probably not as critical as will be the next version to be published in March 2025. That is because inflation is high and expected to rise further early in 2025, which is important in a context in which the MPC has indicated it won't lower rates if inflation is still rising or expected to rise. But the report will still be important in how it will chart out the likely inflation path. We think it will probably give two scenarios: one for inflation with a continuation of anti-inflation measures for energy and one without. This is important since the government has not yet said what it will do in 2025, though it has said there will be some sort of anti-inflation measures. The MPC is expected to announce later today it has held rates.

• Initial deal to be signed later this week, Nikkei reports

The Polish and Japanese governments will sign in the near future a memorandum of understanding on the construction of a nuclear power plant in Poland, according to a report from Japan's Nikkei daily. The deal will be for the use of technologies Hitachi and IHI to build a nuclear power plant in Poland. The article mentioned the technology would be for the first plant, but Poland previously chose Westinghouse Electric for that. Poland is looking to secure financial partners for the construction of its second nuclear power plant.

Overall, Poland is trying to finally make steps towards building its first nuclear power plants, though these aren't expected to be ready for at least 10-15 years and so won't contribute much to generating capacity. In the meantime, in an effort to lower electricity prices boosted by the high cost of coal, the government will look to building renewable sources. But it doesn't seem likely there will be a major reduction in costs until much more supply is able to be generated cheaply.

• TEB raises EUR 48mn and USD 46mn in 367-day tranches; EUR 62.5mn and USD 66mn in 734-day tranches
• Loan offers rates of Euribor/SOFR plus 1.50%-2.25%

Turk Ekonomi Bankasi (TEB) secured a four-tranche syndication loan, the local media reported. The syndication comprised a total of EUR 310.5mn and USD 112mn financing, structured with maturities of 367 days and 734 days to address both short-term and medium-term financing needs.

For the 367-day maturity tranches, TEB raised EUR 248mn and USD 46mn. The interest rate for banks participating with the highest amounts in these tranches was set at Euribor plus 1.50% for the EUR portion and SOFR plus 1.75% for the USD portion. For the 734-day maturity tranches, TEB secured EUR 62.5mn and USD 66mn and the interest rate for the highest participating banks in these longer-term tranches was Euribor plus 2.00% for the EUR portion and SOFR plus 2.25% for the USD portion, the media added.

• 45 international financial institutions participate in dual-tranche loan
• Loan represented highest amount raised by Yapi Kredi in past six years

Yapi Kredi Bank secured a dual-tranche sustainable-themed syndication loan totalling approximately USD 1.05bn according to the statement made to the Public Disclosure Platform (KAP), the local media reported. The bank signed agreements for two separate tranches - a 367-day maturity loan of USD 605.4 million and EUR 410.1mn. The syndication loan was obtained with the participation of 45 financial institutions from 24 countries. The total cost of the loan was set at SOFR plus 1.75% for the USD tranche and Euribor plus 1.50% for the EUR tranche. This marked the highest amount secured by Yapi Kredi in the past six years, emphasising the bank's robust position in international financial markets, the bank's CEO Gokhan Erun highlighted. He also noted that this substantial syndication loan not only enhanced the bank's support for green transformation but also reaffirmed the confidence of international markets in both the bank and the broader economy.

The joint coordinators of the syndication loan were Abu Dhabi Commercial Bank, Bank of America, Emirates NBD, and The Commercial Bank, according to the media. Sustainability coordinators included First Abu Dhabi Bank, ING, Standard Chartered Bank, and Sumitomo Mitsui Banking Corporation, with Emirates NBD also acting as the agent for the transaction, the media added.

• Albayrak may be appointed Vice President in cabinet reshuffle
• His ties to Trump could influence Turkey-US relations ahead of 2024
• Possible return may signal move from orthodox to unorthodox economic policies, in our view
  

Turkish political circles allegedly suggest a potential return of former Finance Minister Berat Albayrak, who is also the son-in-law of President Erdogan, to a significant governmental role, the local media reported. Albayrak might be appointed as Vice President in an anticipated cabinet reshuffle, journalist Bulent Aydemir claimed on his social media account X. This speculation is partly fuelled by Donald Trump securing a second term as US President, given Albayrak's previous interactions with Trump and his administration, according to local media sources. In 2019, Albayrak in his capacity of finance minister had an unscheduled meeting with President Trump in the Oval Office, it said. This meeting was notable not only for its spontaneity but also for the presence of Jared Kushner, Trump's son-in-law and senior advisor, highlighting the close ties between Albayrak and key figures in the US administration, the media underscored. These connections are now being revisited in light of the current political climate, we think.

Albayrak's political journey began in 2015 when he was elected as MP from the Justice and Development Party (AKP). He quickly ascended to ministerial positions, first as energy minister and later as finance minister. His tenure in these roles was marked by significant economic policies and initiatives. Albayrak resigned from his ministerial position in Nov 2020, citing health reasons. His resignation was accompanied by a statement referencing internal challenges, which sparked widespread discussion.

The current speculation about Albayrak's return to a high-ranking position, such as Vice President, can be a strategic move by President Erdogan, which has two aspects, in our assessment. Firstly, aligning with a potential second-term Trump administration could be advantageous for Turkey's international relations, especially considering Albayrak's established connections. However, we note these developments remain speculative, and official confirmations are awaited. Secondly, the Turkish economy is experiencing considerable strain, adversely affecting a large portion of the population and leading to a decline in support for the ruling AKP. Despite President Erdoğan's public endorsement of finance minister Mehmet Simsek and his economic programme, there is uncertainty regarding Erdogan's long-term commitment to these policies, given his history of rapid policy shifts. We think historical precedents also support our analysis. From President Erdogan's perspective, the economic strategies pursued by Simsek may be deemed ineffective because inflation has stayed higher than before and because of the slowdown in economic growth, we think.

The potential appointment of Berat Albayrak could place pressure on the current economic team, in our view. During his previous tenure as finance minister from 2018 to 2020, the policy interest rate was decreased dramatically from 24% to 8.25%, reflecting, in our assessment, his unconventional approach favouring low interest rates to spur growth. Albayrak was also known for his clashes with former CBT Governor Naci Agbal. According to reports, Agbal was abruptly dismissed after initiating an investigation into the expenditure of USD 128bn in foreign exchange reserves during Albayrak's tenure, raising concerns about transparency and fiscal management.

Overall, we think the speculation surrounding Albayrak's return suggests a possible shift back to unorthodox economic policies prioritising rapid growth over strict inflation control. This could involve lowering interest rates and increasing government intervention in the economy, potentially reversing recent efforts to adhere to more conventional economic practices under Minister Simsek, in our opinion.

Objection to detention of Esenyurt mayor Ahmet Ozer is rejected by court (Hurriyet)

President Erdogan congratulates Trump for winning presidential elections in US (Hurriyet)

Heavy snowfall closes road, strands tourists in Artvin (Hurriyet)

President Erdogan: UN cannot make decisions on Gaza (Hurriyet)

Ferry fares increase in Izmir (Sozcu)

Cost of living in Istanbul quadruples minimum wage (Sozcu)

How will Trump's victory affect Turkish economy? Experts touch on two issues (Sozcu)

58 provinces in Turkey increase their exports in Jan-Oct (Sabah)

Capital Markets Board (SPK): Fund size of REIFs to approach TRY 150bn in 2025 (Sabah)

Istanbul governor Davut Gul: Three terrorist attacks are prevented in Jan-Oct (Sabah)

16 people are detained in incidents in Halfeti (Sabah)

• Ruble-euro swaps to facilitate sanction-free transactions
• Company plans to conduct transactions through Turkey's Emlak Katilim Bank

Turkish natural gas importer Bosphorus Gaz is preparing to launch currency swap transactions aimed at facilitating sanction-free trade between Russia and Turkey, the news portal BloombergHT claimed. The company is developing a system where Russian companies pay Turkish exporters in rubles, while Turkish companies receive payments in euros, the portal stated. These transactions are currently in the testing phase, it added.

Bosphorus Gaz intends to utilise the rubles acquired through this system to pay for natural gas purchased under its long-term contract with Russia's state-owned supplier Gazprom, it mentioned. The transactions will be conducted through Turkey Emlak Katilim Bank, with Bosphorus Gaz charging fees for the services provided, the portal said. Products subject to international sanctions will be excluded from these swap arrangements, according to the portal. The new currency swap mechanism is not targeting specific sectors initially and is expected to commence with small volumes, the same source emphasised. One of the anticipated challenges is balancing the value of exports with gas purchases. The company is closely monitoring the initiative to assess its potential momentum and impact on trade dynamics, the company's CEO Bilgehan Ustundag underscored.

According to data from the Ministry of Trade, Turkey sold goods worth USD 144.5mn in rubles in September, accounting for only 18% of its total exports to Russia for that month, highlighting the potential for growth in ruble-denominated trade between the two countries, according to the portal. Moreover, Bosphorus Gaz has a longstanding relationship with Gazprom, it mentioned. Previously, Gazprom owned a 71% stake in the company but sold its shares to Turkey's Sen Group in 2018, it added. Under its contract with Gazprom, Bosphorus Gaz is set to import 2.5bcm of natural gas annually until 2043, reinforcing its significant role in Turkey's energy sector, the portal stated.

Beef exports rise to 57-year high (Clarin)

The AmCham expects IMF assistance and anticipates Trump pressure to help stop China (Clarin)

The United States back Argentina petitioning against the seizure of YPF shares to pay court awards (Clarin)

Pressure on Javier Milei: the opposition prepares a special Congress session for the reform to limit presidential DNUs (Clarin)

Judiciary changes: the government submits 146 judge nominations and considers naming a Supreme Court Judge by DNU (Clarin)

• Govt would replace complex tariff segmentation for single subsidy for low-income households
• Reform would look to reduce state subsidies paid, govt to spend about 1.5% of GDP in 2024

Newly-appointed Energy Secretary Maria Tettamanti will look to simplify the scheme of price subsidies for natural gas and electricity in 2025, which will help the government slash a subsidy burden that will exceed 1.5% of GDP in 2024, the daily La Nacion reported. The previous government implemented a complex tariff segmentation scheme that divides households in three income categories, and subsidizes prices for consumers depending on the category they belong to, their monthly energy consumption, and location. The Milei administration would end the tariff segmentation, replacing it with a single subsidy for low-income households and a single consumption threshold.

Overall, a reform to reduce energy subsidies is necessary, given that more than 60% of households are not paying even 50% of the real cost of the electricity and natural gas they consume. For a country where taxation of the formal economy is too high, fiscal space is tight, and poverty sits well above 40%, dedicating 1.5% of GDP to pro-rich subsidies is not a good use of resources. Ending the segmentation scheme is also important from an efficiency standpoint, and to reduce incentives for populist price freeze policies.

• Trump's win offers hope for more IFI financing, especially from IMF
• Higher interest rates, stronger USD, and commodity weakness are problems for Argentina's macro

It's no secret that President Javier Milei and his inner circle wanted Donald Trump to win the United States election, and the libertarian has already sent his congratulations on social media. In a brief and somewhat weird post tagging Trump, Milei told the elected president that "You know you can count on Argentina to carry out your task". Milei also reposted several other users sharing real and generated photos of himself and Trump hugging.

The impact of Trump's win for Argentina's outlook is not obvious, although the consensus seems to think it is somewhat positive. On the positive side, the government will have someone who is expected to be a stronger ally at the White House, and the hope is this helps Argentina get more financing from IFIs, particularly from the IMF. On the other hand, higher rates, a stronger USD, and commodity weakness are all problems for Argentina.

The medium-term impact is harder to estimate. Precedent suggests that expecting Argentina to benefit from friendshoring is not realistic, but things can change. More geopolitical tensions between powers could also potentially open windows of opportunity for a country looking to insert itself into value chains.

Question:

What is the source for the BCRA's intervention in the parallel FX market?

The question was asked in relation to the following story: BCRA cuts passive overnight rate 5pps to 35%, active rate 5pps to 40%

Answer:

Our source is the BCRA's monthly report on FX market statistics, which can be downloaded here. The transactions labeled as "Compra-Venta de Titulos Valores" includes the BCRA's parallel FX market transactions, so it's the best approximation we have.

BCB accelerates interest rate hike to 0.5pp and Selic rises to 11.25% (Poder 360)

Lula congratulates Trump on election victory, wishes him luck and preaches dialogue (G1)

Lula says Congress will agree to reduce amendments to help cut spending (CNN Brasil)

Trump's victory jeopardizes Brazil's project for COP30 and G20 (O Globo)

• Haddad says only two details remain to be resolved with Lula
• Haddad says announcement could be made Thurs., but Lula may prefer to consult Congress leaders first
• Govt plans to present constitutional amendment and complementary bill with first package's measures

Finance Minister Fernando Haddad said Wed. the announcement of the expenditure cut package is imminent, but added he will finalize two remaining details with President Lula da Silva during a scheduled meeting Thurs. morning. Once resolved, the government will be ready to announce the measures, he added. However, Haddad noted that Lula might prefer to consult with Congress leaders before the public announcement. The finance minister also mentioned that the first expenditure cut package will include a constitutional amendment proposal and a complementary bill.

Overall, Haddad has not yet specified the measures in this first fiscal package. The announcement was originally expected at the end of October following the municipal election runoffs on Oct 27, but discussions with other ministries delayed it. Haddad has spent the past few days in meetings with President Lula, the economic team, and key ministers, including those from Education and Social Security, to finalize the package details. Rising uncertainty over the government's commitment to expenditure cuts has increased risk premiums and pressured the BCB to raise the Selic rate, as it did on Wed., taking the Selic rate up by 50bps to 11.25%. The BCB also indicated in its policy statement that structural budget changes would help anchor inflation expectations, which may indicate support from the BCB for the government's fiscal plan.

• Copom says resilient economic activity, robust labor market, persistent de-anchoring of inflation expectations, and positive output gap demand more restrictive monetary policy
• Copom says presentation and implementation of fiscal structural measures would help anchor inflation expectations
• Decision to raise Selic by 50bps was unanimous, seeking to reinforce the Copom's credibility

The BCB's Monetary Policy Committee (Copom) decided Wed. evening to raise its Selic policy rate by 50bps to 11.25% from 10.75%, accelerating the pace of tightening from the previous 25-bp hike and marking the second increase in the new cycle that began in September, according to a statement. The decision was unanimous, as expected. The decision was driven by an uncertain international outlook, dynamic domestic labor market and economic activity, and de-anchoring of inflation expectations, the Copom said. Moreover, inflation remains above the target, which necessitates a more contractionary monetary policy, the committee noted.

Data Download

On the domestic scenario, the Copom stated that economic activity and labor market data remain dynamic. In addition to inflation expectations from the Focus Report being above the BCB's 3.0% target, the Copom's projection for the second quarter of 2026, which is the current relevant monetary policy horizon for the committee, is also above the target at 3.6%, up from the 3.5% projected in September.

Regarding the government's fiscal policy, the Copom highlighted the significant effects of market perceptions about the issue on asset prices and expectations, particularly on risk premiums and the exchange rate. In reiterating the need for a credible fiscal policy committed to debt sustainability, the Copom suggested a path for fiscal policy for the first time, saying that presenting and implementing structural measures for the budget would help anchor inflation expectations.

On the balance of risks to inflation, the committee noted an asymmetric upward risk to inflation. The upside risks include the prolonged period of de-anchored inflation expectations, resilience in service inflation above projected levels due to a tighter output gap, and the inflationary impact caused by a combination of foreign and domestic policies, such as persistent FX depreciation. On the downside, risks include a sharper-than-expected global economic slowdown and the impact of monetary tightening on global disinflation above that expected.

The Copom also stated that the domestic scenario continues to be marked by resilient economic activity, labor market pressures, a positive output gap, increased inflation projections, and de-anchored inflation expectations, which demand a more contractionary monetary policy. Against this backdrop, Copom members unanimously voted to raise the Selic rate by 50bps to 11.25%. The Copom indicated that future Selic adjustments and the total magnitude of the tightening cycle will be determined by its commitment to controlling inflation and future economic data, especially inflation dynamics.

Overall, the Copom's decision was expected, given the persistent de-anchoring of inflation expectations and a robust economy, with the labor market recording a new historic low in September. The decision was again unanimous, indicating cohesion among its members and aimed at reinforcing the Copom's credibility. This was the first monetary policy meeting following the Senate's approval of Monetary Policy Director Gabriel Galípolo as the next governor of the BCB. His vote, aligning with others in favor of stronger monetary tightening, reinforces our expectation that monetary policy will remain technical under his helm and despite Galípolo's appointment by President Lula da Silva. The meeting minutes will be published next Tues. (Nov 12), providing further details on the considerations behind the decision. Although the Copom didn't give forward guidance, we agree with analysts polled by the BCB that another 50-bp hike at the final meeting of the year on Dec 11 is most likely, bringing the key rate to 11.75% at year-end.

• Surplus falls 52.6% y/y to USD 4.3bn in October from USD 9.2bn a year earlier
• Surplus comes in below USD 4.9bn consensus

Brazil's trade surplus fell a sharp 52.6% y/y to USD 4.3bn in October from USD 9.2bn the year before, according to data released Wed. by the Development, Industry, Commerce, and Services Ministry (MDIC). The figure came in below the USD 4.9bn consensus and marked the sixth consecutive y/y fall. The trade surplus also fell on a m/m basis, dropping by 19.0% m/m from USD 5.4bn a month earlier. In Jan-Oct, the trade surplus decreased by 22.0% y/y to USD 63.0bn from USD 80.8bn the year before.

Data Download

Exports fell by 0.7% y/y in October, which was worse than the slight 0.3% increase seen a month earlier. Agriculture exports drove the decline, falling by 12.3% y/y in October and marking the third consecutive y/y drop. Exports from the extractive industry also fell for the third consecutive month in October whereas manufactured exports grew by 10.6% y/y, the fourth consecutive increase.

Imports grew a significant 22.5% y/y in October, accelerating from 19.9% in September. This marks the seventh consecutive y/y increase in exports. The growth was driven by agricultural imports, which increased by 32.4% y/y in October, followed by manufactured imports, which grew by 25.4%. In turn, extractive imports fell by 9.4% y/y.

China remained Brazil's main trade partner in October, followed by the United States. In Jan-Oct, Brazil recorded a USD 30.9bn surplus with China and a USD 1.4bn deficit with the U.S.

Overall, imports have risen significantly for seven consecutive months, putting pressure on the trade surplus in y/y terms. Although the surplus has narrowed, Brazil has recorded consecutive monthly trade surpluses since February 2022. Analysts polled by the BCB forecast the annual trade balance to record a USD 77.8bn surplus this year, which is above the government's USD 70.4bn expectation, but down from the USD 98.8bn surplus in 2023. We expect the trade balance to remain positive for the last few months of 2024, but significant y/y decreases are likely following the record surplus in 2023.

• Mandatory amendments are to be constrained under the fiscal framework expenditure growth limit

The House of Representatives approved late Tues. the bill to improve the transparency of parliamentary amendments, as requested by the Federal Supreme Court (STF). The bill was sent to the Senate, where it is expected to be voted on next week, after receiving 330 votes in favor, 74 against, and two abstentions in the lower house. The bill allocates BRL 11.5bn for discretionary amendments for 2025, which will be adjusted yearly by the official inflation index (IPCA). Mandatory amendments, in turn, will have their growth limited by the fiscal framework rule, which allows real expenditure to grow up to 2.5% y/y, conditioned to the revenue growth of the previous year.

The bill sets rules to improve transparency around amendments and prohibits them from having a "generic" designation. The so-called 'pix' amendments, previously sent without any indication of purpose or destination, will now require the bank account of the destination to be specified, and the recipient must account for the funds received to municipal or state accounting courts within 30 days of receipt.

Overall, parliamentary amendments are currently frozen until the government and Congress reach an agreement to improve their transparency and traceability, as requested by STF Justice Flávio Dino. The issue has been under discussion since August, but the October municipal elections prevented further progress for some time. Although some NGOs indicate that the bill is not enough to improve accountability, the text provides some improvement in the executive's control over the budget. The government aims to conclude this discussion promptly as it needs to be resolved before Congress can begin work on the 2025 budget and additional measures to help the government achieve a zero-deficit goal in 2025. We note that the STF will review the final text of the bill and may still request further improvements and changes.

• Auto production growth accelerates to 24.7% y/y in Oct from 10.1% in Sep
• Production rises 8.3% m/m in October, following 11.4% fall month before

Automotive production in Brazil rose by 24.7% y/y to 249,177 units in October from 199,758 a year earlier, the growth rate accelerating from 10.1% in September, according to data released Wed. by the National Automotive Manufacturer Association (Anfavea). This is the fifth consecutive y/y increase. Auto production grew by 8.3% m/m in October, following an 11.4% drop the month before. In Jan-Oct, some 2.1mn units were produced, marking an 8.9% y/y increase over the previous year.

Data Download

Output grew across the board in October for the fourth consecutive month in y/y terms. Once again, trucks were the highlight, rising by 41.2% y/y in October after a 60.7% increase a month earlier. On a m/m basis, output also grew in all components, reversing the decline observed in passenger cars and LCV's in September.

Overall, auto production remains strong in Brazil, aligned with Fenabrave's vehicle sales data and supported by resilient economic activity and a robust labor market. Although the increase was not enough to offset the September decline, auto production reached its second-highest level in 2024, trailing only the August result of 259,613 units. Imports rose by 10.4% m/m in October while exports grew by 4.6%, reinforcing Anfavea's concerns over the auto trade balance this year, especially as Chinese imports are accumulating at Brazilian ports, potentially impacting domestic production.

• Haddad says ministers are aware of fiscal package's relevance and conversations with them seem to be concluded

Finance Minister Fernando Haddad said Wed. that President Lula da Silva will likely talk with Senate leader Rodrigo Pacheco and House Speaker Arthur Lira about the expenditure cut measures before sending them to Congress. Haddad added that other ministers are aware of the fiscal package's importance in strengthening the fiscal framework and that discussions on presenting the measures to them are concluded.

Overall, Haddad and the economic team used Tues. afternoon to discuss the first fiscal package with other ministers with the goal to cut spending and improve government finances. The main ministers involved were from Social Security, Labor and Employment, Social Development, Health, and Education, as these areas are expected to experience the largest expenditure cuts. Talks with Congress are a positive sign that the government is seeking support for the measures as congressional approval will be necessary. Haddad indicated Mon. that the fiscal package would likely be presented this week as discussions with Lula are advanced, though no date has been set. With the US elections and the Copom's monetary policy meeting happening this week, some members of Lula's Workers' Party (PT) suggested postponing the announcement. However, we do not believe Haddad will support a delay. In our view, the announcement is still likely to occur this week, especially as FX devaluation persists.

• IGP-DI inflation accelerates to lower-than-expected 1.54% m/m in Oct from 1.03% m/m in Sep on higher commodity and electricity prices
• Twelve-month IPG-DI inflation jumps to 5.91% y/y in Oct from 4.83% the month before
• Consumer prices slow to 0.30% m/m in Oct from 0.63% m/m in Sep, 12M slows to 4.40% y/y in Oct

General price index inflation (IGP-DI) rose by 1.54% m/m in October, accelerating from 1.03% in September and 0.51% the year before, according to data released Wed. by the think-tank FGV. This marks the seventh consecutive m/m increase and the second consecutive acceleration due to higher commodity and electricity prices. Although significant, the IGP-DI inflation missed the consensus estimate of 1.59% m/m. The 12-month cumulative reading jumped to 5.91% y/y in October from 4.83% in September and was compared to 4.27% deflation a year earlier.

Data Download

Consumer price growth slowed to 0.30% m/m in October from 0.63% in September. The rise was driven by the housing component, which grew by 1.09% m/m in Oct, up from 1.72% the month before, mainly due to increased electricity prices as the utility Aneel maintained the tariff flag at red 2 in October. Food prices also rose, climbing by 0.43% m/m in October, up from 0.04% in September. But the education and leisure component fell 1.10% m/m in October. In 12-month terms, consumer price growth slowed to 4.40% y/y in October from 4.55% the month before, moving back below the 4.50% upper limit around the +/- 1.50-pp band around the 3.0% inflation target.

Wholesale prices grew by 2.01% m/m in October, accelerating from 1.20% the month before. Higher commodity prices, particularly for cattle, soy, and corn, drove the increase. Construction prices also rose by 0.68% m/m in October, up from 0.58% in September, led by higher equipment and machinery costs.

Overall, while the IGP-DI came in below expectations, it still showed a significant m/m increase, driven by higher electricity bills and commodity prices for the second consecutive month. However, the impact of electricity prices was lower in October than in September, allowing consumer prices to slow m/m and drop back below the upper end of the fluctuation band. The return to below 4.50% y/y in 12-month terms improves the inflation outlook, as expected by the government, though the persistent FX devaluation and robust labor market may still affect inflation before year-end. Despite this, the de-anchoring of inflation expectations persists, as analysts polled by the BCB have raised their inflation forecasts for end-2024 for the past five weeks, pushing it to above the 4.50% limit in recent weeks. The combination of rising inflation and persistent de-anchoring of expectations is likely to support the Copom's decision to hike the Selic by 50bps late Wed.

Sheinbaum congratulates Trump because of his electoral triumph (La Jornada)

Sheinbaum says there are no worries following Trump's victory, says they'll work on a bilateral agenda (Animal Político)

Sheinbaum acts following Trump's victory, meets with BlackRock's CEO (El Financiero)

The Mexican Peso will get a break after Trump's victory (Expansión)

INE awaits the solution of legal challenges to continue the judicial election (La Razón)

• Sees conditions for private sector to invest some USD 9.0bn

State-owned electricity firm CFE announced on Wednesday it plans to invest some USD 23.4bn in energy infrastructure in the Claudia Sheinbaum administration (2024-2030). These resources are to be allocated in energy generation, transmission and distribution, CFE CEO Emilia Calleja added. This responds to the need of increasing power generation by the state-owned firm, in our view, as the government forces the firm to maintain more than 50% of the generation vis a vis the private sector.

Still, with additional power generation, there is room for private investment in the sector, Energy Minister Luiz González explained. This opens the door for the private sector to invest some USD 9.0bn in the sector. However, the incentives are unclear to us, considering the government reformed the law to prioritize public generation, whether it's more expensive or dirtier than that generated by the private sector. Non this, the minister said the government will create a framework to coordinate this private generation with the use of the national grid, without further detail.

Overall, it's positive to see the government refocus on power generation. The president's environmental agenda suggests this new generation may depend on cleaner sources, a positive too. Moreover, it's positive to see the government trying to call for private investment to boost total generation further. However, this all diverges from the nationalistic energy policy imposed by the previous administration and furthered by Congress and the current administration, in our view, considering Congress passed an energy reform that disincentivizes private investment in the sector, with the blessing of the Claudia Sheinbaum administration.

• Depreciation is large but not too massive, will not prevent further monetary easing, in our view

The currency depreciated as the US election came to a close, with the exchange rate standing at USD/MSN 20.58 at the time of this writing. This already shows a rebound, having hit 20.80 during the night, as the victory of Donald Trump was confirmed.

The currency depreciation can worsen in the coming weeks, particularly if Trump doubles down on its protectionist promises. However, his previous election suggests that the currency will end up regaining ground as the more concerning policies fail to materialize.

The currency has been under grave pressure in the last five months, having closed May at USD/MXN 17.00. This adverse pressure is set to continue, considering the unsound policies promoted by the MORENA regime and fears of protectionist policies arising in the US. Thus, it seems absolutely unlikely that the currency will be returning to such a strong position anytime soon, in our view.

Overall, the currency's depreciation, while large, is not too massive and should not prevent monetary easing from the CB next week. The currency may even gain some ground back by November 11, allowing the CB to continue to cut its policy rate by 25bps. However, the depreciation is enough to ensure no 50bps cut will come, in our view.

• Sharp deceleration comes from a high comparison base, might be transitory
• Exports grow 5.0% y/y, maintaining strong dynamism

Automotive production grew by 1.1% y/y in October, to 382 thousand units, per data published by the stats office INEGI on Wednesday. This increase shows a sharp deceleration from the 11.7% y/y improvement posted in September, showing the weakest hike since March. However, the deceleration comes from a very high comparison base, with production up by 0.9% m/m in October, to the best level so far in the year. Thus, the deceleration seems likely to end up being only transitory, in our view.

Data Download

Exports grew by 5.0% y/y, gaining momentum m/m. With this, exports posted solid momentum entering Q4, a pace that might continue in the coming quarters, considering the resilience of the US economy and the currency's relative weakness.

Overall, the auto industry performed robustly in October, showing it contributing positively to the industrial sector's growth. This performance should remain strong in the coming months, so long as the US economy misses on a deceleration anticipated some months ago and as long as the Donald Trump victory doesn't mean the imposition of protectionist policies in the auto industry.

Question:

I have an issue with Egypt's monthly reports published by the MoF - the reports for May, June, and July only show the July-May FY24 numbers. Do you know where or if there are reports for July-June FY24 and July of FY25?

The question was asked in relation to the following story: Budget deficit falls by 21% y/y to EGP 362bn in Jul-Sep, equals -2.1% of GDP

Answer:

We have the same issues, and our experience shows that you will not find the actual July 2023 - June 2024 figures in these reports this year. We don't know why they don't publish them, even if these were provisional data. What usually happens is that the finance minister will give the main FY 2023/24 figures (e.g., budget deficit/GDP, primary balance, revenue and expenditure) at a press conference in July. Meanwhile, the finance ministry will keep publishing the monthly reports basically omitting the actual 2023/24 figures until they publish them at some point during the next calendar year. The revision mostly reflects the nominal GDP figure (so it mostly affects the GDP ratios), and there is usually a footnote in the monthly reports that will say something like the "2023/24 budget figures have been updated, approved and are now final".

We hope this makes sense. As far as FY 2023/24 is concerned, the finance minister said in July 2024 the budget deficit was EGP 505bn, equal to about 3.6% of GDP. He added that Egypt recorded a primary surplus of EGP 857bn, rising sharply from an EGP 164bn surplus in the preceding FY.

• Inflation to quicken on back of higher education costs and a fuel price increase
• Egypt has hiked fuel and electricity prices ahead of IMF's review

Consumer inflation is projected to quicken to 27.0% y/y in October from 26.4% y/y previously on the back of higher education costs and a fuel price increase, according to the median forecast of 17 analysts polled by Reuters between Oct 31 and Nov 6. This will be the third month with accelerating price growth reflecting the fuel and electricity prices hikes ahead of the fourth IMF review, weaker FX rate, supply line disruptions, and robust monetary expansion.

The MPC expects inflation to remain near current levels until end-2024 but sees a significant easing in H1 2025 due to monetary policy tightening and favourable base effects. The MPC, however, noted that the persistence of regional tensions, elevated international commodity prices, and higher than anticipated pass-through of fiscal measures pose risks to disinflation path.

Click here for our comprehensive database of macro forecasts.

• Tourism minister says average hotel occupancy rate is above 75%
• Egypt expects more tourists from China, Scandinavia in coming years

The number of tourists visiting Egypt this year is expected to increase by 5% to 15.3mn from 14.9mn arrivals in 2023, according to tourism minister Fathy. According to Fathy, the key sector remains resilient and is expected to continue its upward trajectory, despite regional security challenges. Fathy said the hotel occupancy rate averaged 75% this year, with some places recording rates as high as 90%. He added that the tourism ministry will launch a series of targeted promotional campaigns that will utilize social media and AI tools to reach wider audiences, adding that new low-cost flight routes from China and Scandinavian countries are expected to drive a further increase in arrivals. Meanwhile, the head of the cultural tourism marketing committee said the average tourist spends around USD 140 per tourist night, rising from USD 120 last season.

The tourism, which is a major provider of jobs and generates directly about 5% of GDP, has been steadily recovering from the COVID shock and the war in Ukraine, shored up by the weaker pound and the improved security situation in the country. The sector has been - somewhat surprisingly - resilient to the war in the Middle East and is on a track to record another record-high number of tourist arrivals in 2024. The government wants to boost annual tourism revenues from USD 14bn in 2023 to USD 30bn within the next three years.

Four-priority fiscal plan (Ahram)

El-Sisi reiterates to Trump Egypt's interest in strengthening ties in upcoming term (Ahram)

Egypt net int'l reserves increase to USD 46.9bn by end-October: CBE (Ahram)

Egypt budget deficit drops to 2.1% in Q1 FY2024/2025 (Ahram)

Egypt to establish pharmaceutical industry zone in Suez Canal Economic Zone (Ahram)

Egypt's Petroleum Minister, Schneider Electric Discuss Enhancing Digital Transformation in Industry (Sada Elbalad)

IMF Delegation's visit to Egypt Extends Two Weeks (Sada Elbalad)

Madbouly: Egypt not to give up on its water rights; supports development in Nile basin states (Egypt Today)

Egypt's external debt decreases by 89% | Prime Minister (Egypt Today)

Minister of Tourism expects Egypt to receive over 15.3mn tourists by end of 2024 (Egypt Today)

Egypt's Petroleum Minister discusses drilling new wells with BP (Egypt Today)

Communications sector contributes 5.8% to GDP in FY 2023/24: Talaat (Daily News Egypt)

3 European markets fuel the growth of Egypt's tourism sector (Egypt Business)

• PM gave no details, but Egypt is expected to re-evaluate sectors and sizes of stakes in offered companies

The government will present a revamped privatization program later this month, PM Madbouly told journalists at press conference at the new administrative capital. Madbouly did not give any details, but government officials have already said Egypt plans to re-evaluate the sectors and the size of the stakes in state-owned companies slated for divestment. Madbouly said that Egypt is on the right track in terms of its economic reforms. Madbouly also addressed the recent pound's depreciations, saying the will stabilize as investors and the private sector are confident in the current flexible FX rate regime. He said that the FX rate is driven by market forces, adding the government has not intervened in the FX market.

Commenting on the ongoing negotiations with the IMF as part of the fourth review of the USD 8bn loan program, PM Madbouly said the government will not make decisions that would impose additional financial burdens on the population. He confirmed that the "IMF understands and shares this perspective".

Highlights of PM Madbouly's press conference:

• Commitment to Privatization Despite Challenges. Egypt is pushing forward with its privatization program even in the face of economic and regional disruptions. The government remains steadfast, with plans for an updated roadmap to be unveiled by the Investment Minister by the end of November 2024.
• Coordination with the International Monetary Fund (IMF). Egypt's privatization plan is closely tied to its ongoing economic reform program, which has the backing of the IMF. The government is in active discussions with the IMF to realign some of its economic targets given the recent economic and geopolitical hurdles.
• Adjustments to Avoid Additional Burdens on Citizens.PM Madbouly noted that the government is negotiating with the IMF to make necessary adjustments to avoid placing extra strain on the Egyptian population. As global conditions have shifted, the focus is on sustainable growth that minimizes economic pressure on citizens.
• Objectives of the Privatization Program.Egypt's privatization strategy is designed to stimulate the economy through reducing public debt and attracting foreign capital. By divesting stakes in state-owned enterprises, the government aims to inject fresh capital into these companies, boost market efficiency, and spur competition within key sectors.
• Expanding Private Sector Participation. A significant goal of the privatization efforts is to expand the role of the private sector in the Egyptian economy. By increasing private ownership and investment in state-run industries, the government hopes to create a more dynamic and competitive marketplace.
• Potential Challenges and Regional Influences. PM Madbouly has acknowledged that the regional crisis, among other recent challenges, may impact the speed or scale of the privatization program. However, the government remains flexible and is exploring ways to address these obstacles while staying on track with economic reforms.
• Enhanced Market Efficiency and Long-term Growth.A core aim of privatization is to drive long-term economic growth by enhancing efficiency in state-owned companies and encouraging innovation. By involving private players, the government anticipates better performance and competitiveness in both domestic and global markets.

• Next MPC meeting: Nov 21, 2024
• Current policy rate: 27.75%
• EmergingMarketWatch forecast: 27.75%

The MPC will hold a regular rate-setting meeting on Nov 21, and we think the committee will hold the rates again. While inflation came significantly better than expected in each month between March and July, it quickened in August and September reflecting the fuel and energy price adjustments. Core prices quickened in August and remained elevated at 25% y/y in September, pointing towards strong inflationary pressures in the economy. The MPC said last month that the gradual unwinding of food inflation along with the improvement of inflation expectations since the start of 2024 suggest that inflation remains on a downward trajectory, albeit restrained by the drag of fiscal measures. The MPC expects inflation to remain near current levels until end-2024 but sees a significant easing in H1 2025 due to monetary policy tightening and favourable base effects. The MPC, however, noted that the persistence of regional tensions, elevated international commodity prices, and higher than anticipated pass-through of fiscal measures pose risks to disinflation path.

Data Download

Taking the global uncertainty, the elevated inflation and Egypt's increased reliance on portfolio inflows, we think the MPC will hold the rates in November and December. The MPC has delivered a massive 19pps interest rate increase and 400bps increase in the required reserve ratio since March 2022, but the MPC has to keep a tight stance because consumer inflation remains broad-based, reflecting FX pass-through, surging food prices, supply line disruptions, and robust monetary expansion.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Egypt received USD 24bn in fresh funds from UAE; IMF disbursed USD 2.4bn since March
• IMF has just began fourth review of its loan program, which is likely to unlock USD 1.3bn
• Egypt has secured USD 57bn external financing for 2024-27, which bolstered investor confidence
• Foreign funds have been buying T-bills through local bourse and from local banks
• CBE's FX deposits in domestic banks, which are available as a source of FX liquidity, rise to USD 9.6bn

Egypt's net international reserves rose by USD 210mn or 0.4% m/m to USD 46.9bn as of end-October, reaching the highest level in more than two decades, according to the central bank. The m/m increase was driven by rising currency and deposits with non-resident banks (+USD 283mn), rising SDRs (+USD 273mn), and gold (+USD 450mn), while Other reserves assets(other than derivatives and loans to non-residents) fell by sharp USD 720mn on the month. FX reserves have jumped since March as Egypt received USD 24bn in fresh funds from the UAE, while the UAE converted another USD 11bn of deposits at the CBE into direct investments. The securing of this major deal allowed Egypt to implement the long-delayed float of the pound, which was accompanied by a 600bps interest rate hike. Following the reform, the IMF promised USD 8bn in augmented financing and a separate USD 1.2bn climate-related financing. Egypt received the first and second tranches of the IMF program (each of USD 820mn) in April and June, and the third tranche of USD 820mn in early August. The fourth review - which could unlock USD 1.3bn tranche - was just started after being delayed by two months upon Egypt's request.

Data Download

IMF's program is centered on a liberalized foreign exchange system in the context of a flexible FX rate regime, a significant tightening of the policy mix, reducing public investment, and delivering on structural reforms to allow the private sector to become the engine of economic growth. The FX reform eliminated the black FX market and has boosted liquidity in the official banking system. Further, CBE is committed to clearing the FX backlog and FX arrears that have accumulated over the past couple of years and will stop providing direct financing to the government, which has put pressure on the pound. In addition to the UAE deal and the augmented IMF program, Egypt has also secured USD 8bn soft loans and grants from the EU for 2024-27 and USD 6bn loan from the World Bank.

Data Download

The securing of the massive USD 57bn financing and the FX currency reform bolstered investors' confidence and foreign investors rushed to buy short-term debt. Foreign funds bought around USD 15bn worth of T-bills and bonds on EGX's secondary market and another USD 8bn directly from the banks, the latter boosting the foreign assets of the commercial banks and resulting to a surplus of the banks' NFAs for the first time in two years. Meanwhile, CBE's FX deposits in domestic banks, which are available as a source of FX liquidity, edged up to USD 9.6bn as of end-October. The first test to CBE's FX policy came in August during the global sell-off and the central bank allowed the pound to weaken, which we think was a healthy indicator of the CBE's commitment to the new flexible FX rate regime. Further, despite the massive portfolio inflows since the pound, the sell-off though the EGX was rather limited and quickly reversed in September, suggesting Egypt's financial market may be more resilient to global shocks than previously thought. This resilience could be attributed to the recent reforms, improved investor confidence, and relatively large FX reserves.

Data Download

• Contract to focus on identifying oil and gas resources in onshore fields

The Abu Dhabi National Oil Company (ADNOC) announced the award of a contract to BGP Inc., a subsidiary of China National Petroleum Company (CNPC), worth up to USD 490mn, to expand the scope of the world's largest combined three-dimensional (3D) onshore and offshore seismic survey currently underway in the emirate of Abu Dhabi.

The contract will focus on identifying additional oil and gas resources in ADNOC's producing onshore fields. ADNOC and BGP will leverage advanced artificial intelligence tools to accelerate interpretation of the seismic data, maximize resource recovery and the use of existing infrastructure in producing fields to enhance efficiencies.

Over 70% of the award value will flow back into the UAE's economy under ADNOC's In-Country Value program.

• Agreement is with a subsidiary of Germany's SEFE Securing Energy for Europe

The Abu Dhabi National Oil Company (ADNOC) announced it has signed the first long-term sales and purchase agreement (SPA) for the Ruwais LNG project, which is currently under development in Al Ruwais Industrial City, Abu Dhabi. The SPA is with SEFE Marketing & Trading Singapore, a subsidiary of Germany's SEFE Securing Energy for Europe.

The 15-year, 1mn tonnes per annum (mtpa) SPA converts the previous Heads of Agreement between ADNOC and SEFE announced in March into a definitive agreement. The LNG will primarily be sourced from the Ruwais LNG project, with deliveries expected to start in 2028 upon commencement of its commercial operations.

To date, over 7 mtpa of Ruwais LNG project's production capacity has been committed to international customers through long-term agreements.

This LNG supply agreement reinforces the Energy Security and Industry Accelerator (ESIA) agreement, signed by the UAE and Germany in 2022, further strengthening bilateral cooperation in energy security, decarbonization and climate action. It builds upon ADNOC's delivery of the first LNG cargo from the Middle East to Germany in 2023.

The Ruwais LNG project, which consists of two 4.8 mtpa LNG liquefaction trains with a total capacity of 9.6 mtpa, will more than double ADNOC's LNG production capacity to around 15 mtpa, to help meet increased global demand for natural gas.

It should be noted that global natural gas demand is increasing. Additionally, European countries are not purchasing Russian natural gas and looking for alternative suppliers. Natural gas accounts for over a quarter of Germany's energy supply.

We remind that the UAE wants to increase natural gas production and exports. Here is some additional information about how ADNOC is increasing its natural has capabilities:

In September, ADNOC entered a 15-year supply agreement with IndianOil for 1 mtpa of LNG.

In May, ADNOC purchased a 10% interest in the Area 4 concession of the Rovuma basin in Mozambique. The acquisition gives ADNOC a share of the LNG production from the concession, which has a combined production capacity exceeding 25 mtpa.

ADNOC also purchased a 11.7% stake in Phase 1 (Trains 1-3) of energy company NextDecade's Rio Grande LNG (RGLNG). RGLNG is an LNG export project located in Texas that is expected to produce a less carbon-intensive LNG.

Also in May, ADNOC signed a 15-year agreement with EnBW Energie Baden-Wurttemberg (EnBW), one of the largest energy companies in Germany, for the delivery of 0.6 mtpa of LNG. The LNG will primarily be sourced from ADNOC's Ruwais LNG project and deliveries will start in 2028.

In January 2024, ADNOC Gas, a subsidiary of ADNOC, signed a 10-year agreement to supply 0.5 mtpa of LNG to Indian natural gas company GAIL. Deliveries will begin in 2026.

In December 2023, ADNOC signed a 15-year agreement with ENN LNG (Singapore), a wholly-owned subsidiary of ENN Natural Gas Co. (ENN Natural Gas), for the delivery of LNG.

• Deal is expected boost non-oil bilateral trade to USD 15bn by 2032

The UAE and Australia signed the Comprehensive Economic Partnership Agreement (CEPA), according to a statement by the country's foreign trade minister. The CEPA agreement, which aims to boost the bilateral trade between the two countries to USD 15bn by 2032, removes or reduces tariffs and lifts barriers to trade. Notably, the deal is Australia's first trade agreement with a country from the MENA region.

We remind that the UAE's CEPA programme aims to increase the country's non-oil foreign trade to AED 4tn (USD 1.1tn) by 2031 and double the size of the wider economy to surpass USD 800 billion by 2030. Here is a brief overview of the UAE's efforts to sign CEPAs across the world:

The UAE concluded CEPA negotiations with Malaysia. Earlier in October, the UAE signed a CEPA with Serbia.

In September, the UAE and New Zealand signed a CEPA. The two countries began negotiations in May. Also in September, the UAE and Australia finalised negotiations on a CEPA. In July, the UAE signed CEPAs with Chile and Morocco.

The UAE signed a CEPA with South Korea in May. Additionally, the UAE finalised the terms of a CEPA with Ukraine in April and began negotiations with Ecuador. The UAE also recently signed similar agreements Costa Rica and Colombia.

Elsewhere, the UAE and Hungary signed a CEPA in March. UAE and Kenya concluded negotiations on a CEPA earlier in 2024.

The UAE has also concluded CEPAs with Cambodia, India, Israel, Indonesia, Turkey, the Philippines, Mauritius, and Congo.

The UAE is also in negotiations with Vietnam. We have reason to believe that the UAE is also in negotiations with Georgia.

• The scheme allows banks to trade uninvested foreign currencies
• Individuals can deposit dollars held outside the banking system without penalty
• Critics caution that the scheme could raise money laundering risks

The CBN has issued guidelines for the implementation of a free FX deposit window, following the federal government's recent announcement. Effective from November 7, the guidelines outline the participation of commercial, merchant and non-interest banks in the scheme, which allows these banks to trade deposited foreign currencies that are not immediately invested by participants. The federal government's program enables individuals to deposit dollar bills held outside the formal banking system without penalty or scrutiny. The CBN's regulations stipulate that banks must collect necessary identification details, conduct customer due diligence and ensure compliance with anti-money laundering laws.

Experts have generally supported the initiative, believing it will improve liquidity in the FX market. Some market analysts suggest that the policy could help stabilize the currency by increasing forex availability, while also discouraging dollar-denominated transactions within the country. However, critics warn that the scheme could potentially lead to money laundering, urging the government to strengthen its anti-money laundering measures. As the naira's performance continues to decline, analysts are watching how this scheme will affect the FX market in the coming months.

Data Download

• Nigeria's generation capacity is 13,610MW, while DisCos' distribution capacity is limited to 4,000MW
• DisCos rejected 1,400MW of the 5,313MW generated in September

The National Orientation Agency (NOA) has attributed the frequent collapse of Nigeria's national grid to the inability of electricity distribution companies (DisCos) to handle the generated power. The Transmission Company of Nigeria now has a wheeling capacity of over 8,100MW and can comfortably transmit 6,000MW of generated power. However, with a total generation capacity of 13,610MW, the distribution capacity of the 11 DisCos remains limited to around 4,000MW. This gap leads to grid instability, with significant load rejections. NOA revealed that in September, DisCos rejected 1,400MW of the 5,313MW generated.

NOA also pointed to the financial challenges faced by DisCos, particularly around cost recovery, which hinder their ability to upgrade infrastructure. The lack of sufficient investment in critical facilities contributes to the instability of the system. To address these issues, the current government administration is implementing measures such as the Presidential Metering Initiative, cost-reflective tariffs for Band A customers and a USD 800mn fund for power substations and distribution upgrades.

• The house confirmed that the public will be consulted through town hall sessions
• The four bills have phased opposition from governors and some tax experts Bottom of Form

The house of representatives has announced plans to consult tax experts on the implications of the proposed tax reform bills currently under review in the national assembly. In an interview with The Punch publication on Wednesday (Nov 6), deputy spokesman Philip Agbese said the house has committed to engaging the public through town hall sessions. Introduced by the Federal Executive Council, four the bills aim to streamline tax processes, create a unified revenue service and simplify financial obligations for businesses and individuals. These proposals follow months of review by a committee led by Taiwo Oyedele.

However, the proposed reforms have faced opposition from various stakeholders. Last week, all 36 state governors called for the bills' withdrawal. They argued that additional consultation is needed to address regional concerns. This position follows an earlier statement from 19 northern governors, who opposed the reforms on the grounds of potential negative impacts on the North and state governments.

Meanwhile, Federal Inland Revenue Service (FIRS) chairman Zacch Adedeji clarified that the four tax reform bills pose no threat to any government revenue agency. He assured that renaming FIRS to the Nigeria Revenue Service would not lead to the merger of other agencies, as some have speculated. The reforms, he explained, aim to boost these agencies' sustainability by improving tax efficiency and easing compliance, allowing them to focus on their core functions. Adedeji stated that consolidating tax provisions would make Nigeria's regulatory framework more business-friendly for investors.

FG panel blames poor maintenance for grid collapses (Punch)

Tax bills not threat to revenue-collecting agencies - FIRS (Punch)

Marketers sue Dangote, insist on petrol import (Punch)

Lawyers demand rehabilitation, compensation for freed #EndBadGovernance minors (Punch)

Reps to engage experts on controversial tax reform bills (Punch)

LASG, China seek partnership in trade, investment (Punch)

Israeli Envoy Alleges Iran Behind Terrorism Globally, Including In Nigeria, Rest Of The Sahel (ThisDay)

Tinubu Directs National Flag Be Flown At Half Mast For Seven Days In Honour Of Late COAS (ThisDay)

FAAC revenue hits N6.28 trillion in Q2 2024 as VAT, import duties offset low oil earnings (Nairametrics)

Nigerian Governors call for urgent actions amid worsening rate of neonatal mortality, malnutrition (Nairametrics)

Nigeria has secured over $1 billion investment oil and gas sector- Olu Verheijen (Nairametrics)

Lagos invites companies to bid for construction of power plants to meet State electricity demand (Nairametrics)

Matrix, AA Rano, AYM Shafa respond to Dangote Refinery's N100 billion suit against their import licenses (Nairametrics)

FG blames frequent grid collapse on DisCos' inability to take generated electricity (Nairametrics)

.

• Dangote's lawsuit claims the NMDPRA violated the Petroleum Industry Act by issuing import licenses
• Marketers argue that Dangote's push for monopoly control could drive up fuel prices

Three oil marketers have requested that the Federal High Court in Abuja dismiss a lawsuit filed by Dangote Refinery regarding the issuance of petroleum import licenses. The marketers (AYM Shafa Limited, A. A. Rano Limited, and Matrix Petroleum Services Limited) argued in a counter affidavit that granting Dangote Refinery's request for monopoly control over petroleum importation would harm Nigeria's oil sector. Dangote's lawsuit claimed that the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) breached its responsibilities under the Petroleum Industry Act by issuing petroleum import licenses.

In their filing, the marketers stated that Dangote Refinery does not currently produce enough petrol to meet Nigeria's daily needs and argued that there was no evidence to suggest otherwise. They argued that the import licenses issued to them by regulatory authorities are lawful and do not harm Dangote's business. According to the marketers, placing exclusive control of Nigeria's fuel supply in the hands of one entity would lead to unchecked price increases and could trigger an energy crisis if disruptions occur. Justice Inyang Ekwo has scheduled January 20 2025 for a report on settlement or service.

In October, Dangote issued a statement about the lawsuit and said proceedings are currently on hold, with plans to withdraw the case entirely by January 2025. The refinery described the lawsuit is as an old case, stemming from issues that began in June and culminating in a filing on September 6 2024.

Question:

Is there an official source that publishes trading volumes for local currency government debt securities?

The question was asked in relation to the following story: Govt leverages USD 669mn Global Fund support for health insurance

Answer:

Secondary market trading information was published on the FMDQ Exchange website in the past but it's no longer free like it used to be. For now, the FMDQ does publish some market data such as monthly turnover figures but accessing detailed trade data requires a subscription.

• Sale of cars and bikes drove petrol and diesel consumption
• Aviation fuel, LPG and petrol sales drove overall consumption

According to the oil ministry's preliminary data release, fuel consumption in October grew 2.9% y/y, driven by increasing economic activity. India's manufacturing and services sector activity rose during the festive month driving increased demand. Furthermore, sale of cars and bikes appears to be another reason for increased consumption, in our view.

In more detail, petrol sales rose 8.6% y/y, while diesel sale grew minimally by 0.1% y/y. On the other hand, jet fuel consumption increased by a strong 9.4% y/y. The rise underscores seasonal travel demand in India during the festive season. Additionally, LPG consumption rose 9.3% y/y indicating increased commercial demand for cooking fuel.

Meanwhile, bitumen consumption fell 7.3% y/y highlighting a slowdown in construction activity. Bitumen is used primarily in road laying.

Exporters could face some heat, focus may shift to India growth story (Economic Times)

IMD issues heavy rain yellow alert across city and nearby 11 coastal districts in Tamil Nadu for next 48 hours (Economic Times)

Rupee hits new low; yet second best performer among Asian currencies (Business Standard)

Cabinet approves PM-Vidyalaxmi to provide aid to meritorious students (Business Standard)

Delhi's air quality remains 'very poor', AQI at 367 (Economic Times)

SBI economists see Q2 GDP growth slowing down to 6.5% this fiscal (Business Standard)

India to see uptick in imported inflation (Financial Express)

What Trump 2.0 means for India and South Asia (The Hindu)

Centre infuses equity of INR 107bn in Food Corporation of India (The Hindu)

India's vegetable oil imports seen lower in 2024-25, industry group says (Economic Times)

• Next Policy Meeting: Dec 4-6, 2024
• Current Policy Rate: 6.5%
• Last Decision: Hold (Oct 9)
• Our Forecast: Cut by 25bps
• Rationale: With inflation under control and indications of slowing growth, the RBI is expected to reduce rates to stimulate economic activity.

During the Monetary Policy Committee (MPC) meeting on October 9, the Reserve Bank of India (RBI) decided to maintain the repo rate at 6.5%. This meeting was notable for featuring a new group of external members, providing a fresh perspective on policy discussions. The committee voted 5-1 to keep the policy repo rate steady at 6.50%, while the standing deposit facility (SDF) was set at 6.25%, and both the marginal standing facility (MSF) and Bank Rate were established at 6.75%. This decision reflects a balanced approach, aiming to support economic growth while keeping inflation in check.

Data Download

The RBI continues to prioritize guiding inflation toward its medium-term target of 4%. Recent inflation data supports this cautious stance, as price pressures have shown volatility. The MPC has shifted its stance to neutral, indicating a potential for future rate cuts. Governor Das emphasized that inflation risks remain, and the trajectory over the next three months will be crucial for the RBI's December decisions. He pointed out that geopolitical tensions in the Middle East and fluctuations in global crude oil prices could impact inflation. The RBI aims to maintain the disinflationary progress achieved over the past two years, with a focus on stabilizing headline inflation at a sustainable 4%. Given expectations of manageable inflation, a rate cut is anticipated in December 2024 to foster growth.

Economic Growth

India's GDP grew by 6.8% y/y in Q1 FY25 (April-June), slightly below market expectations of 7%. This slowdown was primarily attributed to reduced government expenditure ahead of elections. Despite high inflation and elevated interest rates, consumer demand has remained robust, indicating resilience in domestic consumption.

Data Download

Looking forward, the RBI projects GDP growth of 7.2% for FY25, which is slightly above estimates from other institutions. The Asian Development Bank (ADB) anticipates a growth rate of 7% for FY25. Analysts are more conservative, predicting growth between 6.5% and 7.2%, as private consumption slows and investment recovery is hindered by high borrowing costs. Nevertheless, indicators suggest that both manufacturing and services sectors are expanding, with Purchasing Managers' Index (PMI) data reflecting increasing orders and positive sentiment.

Data Download

Rural demand, an essential component of the economy, is gradually improving, while urban consumption has moderated. There are speculations that the government may introduce stimulus measures to boost demand following recent electoral challenges faced by the ruling BJP. Potential policy actions could include increased cash transfers to farmers and tax reductions aimed at enhancing household income. Additionally, stronger global economic performance later in 2024 could further enhance growth prospects. Consequently, despite a high-interest-rate environment, the RBI is unlikely to prioritize demand reduction at this time.

Inflation

Data Download

While India's economic growth appears solid, inflation presents a more complex scenario. After rising to 5.1% y/y in June, inflation fell to 3.5% in July due to a favourable base effect but increased to 5.5% y/y in September as anticipated. This fluctuation indicates that inflation remains volatile and significantly influenced by domestic factors such as food supply dynamics. As favourable base effects dissipate, headline inflation is expected to rise further in Q4 2024. The government is introducing supply side measures such as sale of wheat flour and rice to ensure food inflation remains manageable. Meanwhile, rising food grain output bodes well for the economy. The MPC forecasts an average CPI inflation of 4.5% for 2024-25, with specific projections of 4.1% for Q2, 4.8% for Q3, and 4.2% for Q4. Despite this anticipated moderation, the committee acknowledges considerable risks including adverse weather patterns, escalating geopolitical tensions, and volatility in global commodity prices-particularly concerning international crude oil prices which have shown instability recently.

Financial and External Sector

India's financial sector remains strong, with commercial banks and non-banking financial companies exhibiting healthy capital ratios and asset quality. Credit growth averaged 18.8% year-on-year from January to August this year. On the external front, foreign exchange reserves reached a record high of USD 684.8bn as of October 25, 2024. However, India's current account deficit (CAD) widened to 1.1% of GDP in Q1 FY25 due primarily to an increasing trade deficit; nonetheless, robust service exports and strong remittance inflows are expected to keep the CAD within manageable limits.In terms of external financing dynamics, foreign portfolio investment (FPI) flows shifted from net outflows of USD 4.2bn in April-May 2024 to net inflows of USD19.2bn from June through early October (up until October 7). Foreign direct investment (FDI) flows also remain strong for FY25 with improvements noted in both gross and net FDI inflows from April to July this year. Overall, India's external sector shows resilience with key indicators reflecting reduced external vulnerability; thus, the RBI remains confident in its capacity to meet external financing needs comfortably.

Data Download

Outlook

The FY25 budget underscores the government's commitment to infrastructure investment and economic stimulus through measures such as income tax reductions aimed at enhancing domestic consumption; however, these initiatives may not fully counteract the dampening effects of high interest rates. The RBI is likely to adopt a cautious stance in the upcoming quarter but is expected to implement a rate cut in December-projecting a reduction of around 25 basis points if inflation remains stable and external factors do not escalate headline inflation pressures significantly.

Further Reading

Monetary Policy Meeting Statement, October 2024

Reserve Bank of India Consumer Confidence Survey, Oct 2024

Reserve Bank of India Household Expectations Survey, Oct 2024

Minutes of the Monetary Policy Committee Meeting, Oct 2024

• Sales showed strong recovery
• Two-wheeler and three-wheeler sales drove growth
• Commercial vehicles saw modest growth

According to the data released by The Federation of Automobile Dealers Associations (FADA), India's retail vehicle sales rose 36.3% y/y to 2.83mn units in October. This follows a 9.3% y/y decline in September, reflecting the lean season for discretionary spending in India. Passenger vehicle retail sales grew 32.3% y/y to 483,159 as the festive demand kicked in. The recovery was anticipated by manufacturers as demand for automobiles is higher during the October-November season.

The retail sales boost was driven primarily by two-wheeler and three-wheeler sales underscoring strengthening rural demand. The 2W segment recorded a strong 36% y/y and 71% m/m increase, spurred by a confluence of major festivals that encouraged consumer spending. Dealers noted that festive offers, discounts, and new model launches were key to attracting buyers.

In the commercial vehicle segment, growth was more moderate at 6% y/y, supported by robust agricultural markets and significant bulk purchases, especially for container transport.

Looking ahead, the wedding season is expected to sustain strong sales momentum in the two wheeler and passenger vehicle categories. While dealers remain optimistic, they are cautious about factors that could slow this momentum toward year-end.

• Govt, trade unions agree on formula, but not on coefficient used for GDP growth
• We expect govt to proceed with its own proposal

The government and trade unions clashed over the new formula for calculating the minimum wage increases, CNBC Indonesia reported. The two sides agree over the general formula, but not over the coefficient used for economic growth. The formula is as follows:

Minimum wage hike = Average CPI rate + a * GDP growth rate

The government wants to set the "a" coefficient to 0.2-0.5 for labour-intensive industries and 0.2-0.8 for capital-intensive industries. On the other hand, trade unions want no distinction between industries and "a" coefficient between 1.0-1.2.

Judging from past experience, the government is likely to move on with its own proposal as there is little scope for concessions. Moreover, the general agreement over the formula would suggest little further unrest among workers regarding the minimum provincial wage (UMP). We remind that trade unions traditionally demand a double-digit increase, with the government always going for a single-digit increase.

• FX reserves rose by USD 1.1bn m/m
• Valuation of gold reserves increased as gold prices continue to climb

The official reserve assets rose by 0.9% m/m to a record high of USD 151.2bn at end-October, according to Bank Indonesia's data. The increase was driven predominantly by forex reserves, which were up by USD 1.1bn m/m, while the valuation of the BI's gold reserves also rose by USD 331.2mn as gold prices continued their climb.

Data Download

Since the beginning of the year, the official reserves have increased by USD 4.9bn, both on the back of higher FX reserves and gold prices. In annual terms, their growth remains in the double digits at 13.6% y/y.

Overall, official reserves have been on an upward trend since May, after declining in the first four months of the year. Looking forward, we expect reserves to continue to increase as export growth picks up, though there could be some volatility based on the gold price movements after the US election.