Macro and politics

* The CBRT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of January 3 – 10 today @ 14:30 local time. Based on our calculations upon the CBRT’s analytical balance sheet, we estimate that during the week of January 3 – 10, the net international reserves increased further by USD2.11bn to USD69.73bn and the gross FX reserves climbed by USD2.52bn to USD160.56bn. To recall the data from the previous week: In the week of December 27 – January 3, the equity and the bond market (excluding the repo transactions) market experienced a foreign inflow of USD42.1mn and USD187.5mn, respectively. Moreover, the foreigners’ share in total bond stock increased to 7.9% from 7.7% in the mentioned period. In annual terms, the equity market experienced a cumulative foreign outflow of USD2.4bn, while the bond markets (excluding the repo transactions) saw a cumulative foreign inflow of USD16.4bn. Besides, the residents’ FX deposits rose slightly by USD166mn (gold accounts excluded, EUR/USD parity adjusted) in the period of December 27 – January 3, while their total FX deposits (including gold, price adjusted) climbed moderately by USD144mn. The CBRT’s gross FX reserves rose by USD2.9bn to USD158bn, while net international reserves increased by USD4.1bn to USD67.6bn. Lastly, net reserves excluding swaps surged by USD2.9bn to USD46.6bn.

*In December, the central government budget recorded a deficit of TL829.2bn, with the primary deficit amounting to TL754bn. As a result, the central government budget for 2024 posted a record deficit of TL2.1tn, slightly exceeding our house estimate of TL1.9tn, while aligning with the official budget deficit projection of TL2.15tn set out in the Medium-Term Economic Program. Moreover, the primary balance for 2024 resulted in a deficit of TL835.7bn. A significant portion of the approximately TL1tn earthquake-related expenditures anticipated for this year was incurred in the final month, in line with our expectation, leading to a notable increase in the budget deficit. On the expenditure side, there was a 22.3% annual increase in December. In terms of budget revenues, there was a 60.4% annual rise, and when considering the 44.4% annual CPI inflation rate in December 2024, it is evident that there was a real increase in budget revenues. We project the 2025 budget deficit at TL1.61tn (2.7% of GDP). In 2025, a year likely to present greater challenges in addressing inflation, we believe the effectiveness of fiscal policy will depend on enhanced coordination and the successful execution of fiscal consolidation, crucial for balancing inflation and growth.

*The CBRT Governor Karahan, delivered a presentation in London yesterday, on inflation outlook in Turkey. Karahan stated that the decline in inflation is prevailing, and that service sector inflation has also shown signs of moderation. He highlighted that rent inflation is on a downward trajectory, and the core inflation trend has been experiencing a reduction. Karahan noted positive developments in inflation expectations and reported that improvements have started to emerge in household inflation expectations as well. He also pointed out the continued rise in the share of Turkish lira deposits. Karahan mentioned that the decrease in FX protected deposit accounts (KKM) persists, with a limited portion of KKM accounts transitioning to foreign currency. He emphasized the significant improvement in reserve adequacy.