Macro and politics

*The Treasury will hold 6m G-bond auction today. The Treasury tapped the domestic markets to the tune of TL136bn so far this month. After today’s single auctions, the Treasury will hold 3y CPI-indexed and 6y FRN auctions tomorrow and the direct sales of 1y gold-denominated bond & 1y gold-denominated lease certificate on January 24^th and finalize its domestic borrowing program for January. According to three-month (Jan – Mar 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL225.4bn in January, while in return plans to borrow TL293.8bn throughout the month, indicating a roll-over ratio of 130%, via six auctions and two direct sales.

* The CBRT released the results of the Market Participants Survey for January 2025. The results revealed that the year-end inflation expectation for 2025, which stood at 27.07% in December, showed no palpable change in the January survey. Besides, survey participants projected a monthly CPI rise of 4.07% for January. Meanwhile, the 12-month ahead inflation expectations declined from 27.07% to 25.38%, and the 24-month ahead expectations fell from 18.47% to 17.72%. Although our projections are still under review, we anticipate January monthly inflation to be around 4%, with annual inflation falling below 42%, mainly driven by positive base effect. Our year-end CPI forecast for 2025 stands at 28%. Market participants anticipate that the Monetary Policy Committee (MPC) meeting on Thursday, January 23rd, will result in a 250bps rate cut, bringing the policy rate down to 45%., in line with our house estime. The survey revealed an average USD/TRY exchange rate expectation of 43.03 for year-end 2025. Our house forecast is slightly higher at 45. In terms of growth and external balances, the survey participants maintained their 2025 growth estimate at 3.1%, with 2026 growth expected at 3.9%. Current account deficit expectations stand at USD17.4bn for 2025 and USD22.5bn for 2026. We expect 2025 GDP at 2.6%.On the external balance, we estimate a current account deficit of around USD3.5bn for December. For 2024, excluding potential revisions, we foresee a deficit of approximately USD9bn (0.7% of GDP), and for 2025, we project a deficit of 15 billion USD (1% of GDP).

* Short-term external debt stock in November materialized at USD178.8bn, down by 0.8% m/m. In terms of short-term debt statistics, we believe that “debt stock on a remaining maturity basis,” calculated based on the external debt maturing within one year or less regarding the original maturity, is rather critical, which is at USD232.7bn as of November 2024. Out of this figure, USD23.8bn is debt to the resident banks and private sectors to the banks’ branches and affiliates abroad. Stripping this amount from the total results in USD208.9bn. We also add 12-month forward-looking CAD expectations on this amount so as to reach Turkey’s annual external financing need (EFN).  Accordingly, we calculate EFN as of November 2024 around USD225bn.

* The Residential Property Price Index (RPPI) registered a monthly rise of 2% and an annual increase of 29.4% in December, reaching a level of 158.45. Yet, in real terms, RPPI dropped further by 10.4% y/y. The real depreciation in RPPI on an annual basis has persisted since February.