Macro and politics

* We expect the Monetary Policy Committee (MPC) to cut the policy rate by 250 bps to 45% in today’s rate-setting meeting. We expect a cautious tone in the decision document, one that avoids sending dovish signals and emphasizes that data-driven decisions will be made in every meeting. Ahead of the January inflation data, which will be released at the beginning of February and is estimated to be around 4% on a monthly basis (though we have not yet finalized our official forecast), we believe the MPC may proceed with further rate cuts. We also note that the absence of meetings until March, following the January meeting, will provide the MPC with sufficient time to monitor inflation developments. Our year-end policy rate forecast for 2025 is 30%, while our inflation forecast stands at 28%.

*TURKSTAT will release January Consumer Confidence Index @ 10:00 local time. The consumer confidence index data to be released for January will provide the first growth signals for 2025. Recall that the Consumer Confidence Index rose to 81.3 level from 79.8 to as of December, indicating 1.9% m/m rise. The Index, which declined from an average of 79.8 in the third quarter to 76.8, rebounded to an average of 80.6 in the final quarter of the year, signaling some improvement in domestic demand. The evident rise in consumption tendency in recent months raises the likelihood of positive quarterly growth in 4Q24. Nonetheless, we anticipate that stringent financial conditions will place additional strain on the industrial sector, with annual GDP growth expected to decelerate further over the next two quarters. We expect annual growth to gain some momentum starting in the second quarter of 2025, following a relatively subdued period. We project GDP growth to conclude 2024 at around 2.9%, with a further slowdown to 2.6% by the end of 2025.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of January 10 – 17 today @ 14:30 local time. Based on our calculations from the CBT’s analytical balance sheet, we estimate that during the week of January 10 – 17, the net international reserves increased further by USD1.63bn to USD71.6bn and the gross FX reserves climbed by USD2.9bn to USD163.4bn, reaching new record-high levels. To recall the data from the previous week: During the week of January 3–10, the equity market witnessed a foreign outflow of USD211.8mn, while the bond market recorded a net foreign inflow of USD460.5mn (excluding repo transactions). Furthermore, the foreigners’ share in the total bond stock remained unchanged at 7.9% during this period. On an annual basis, the equity market saw a cumulative foreign outflow of USD2.7bn, whereas the bond market (excluding repo transactions) experienced a cumulative foreign inflow of USD16.4bn. The residents’ FX deposits receded by USD1.1bn (gold accounts excluded, EUR/USD parity adjusted) in the period of January 3 – 10, while their total FX deposits (including gold, price adjusted) eased by USD1.2bn in the week of January 3 – 10. The CBT’s gross FX reserves increased by USD2.52bn to USD160.56bn, while net international reserves rose by USD2.34bn to USD69.95bn. Net reserves excluding swaps, moreover, climbed by USD8.3bn to USD54.9bn.