RS: NBS lowers key rate to 5.75%

Following the pause in August, NBS decided to continue the cutting cycle, lowering the key rate by 25bp to 5.75%. NBS outline several factors behind the decision the fact that inflation has been moving inside the target band since May including todays release for August (4.3% y/y) with high likelihood of further easing, as well as the deflationary effects of past restrictive monetary measures.

Going forward we expect the NBS to cut by an additional 25bps by year-end, which would set the key rate to 5.50%. In 2025, we expect the NBS to deliver another 100bps in cuts. The pace of cuts would thus be similar to what is expected from the ECB by markets but with inflation in-check and continuously strong FDI pushing dinar higher, there could be enough space to squeeze in an extra cut.