Macro and politics

* Credit rating agency Moody’s, which was expected to release Turkey’s sovereign rating review on Friday, opted not to make a rating action and instead announced the completion of a periodic review of ratings of Turkey. Market participants had anticipated Moody’s to upgrade Turkey’s credit rating by one notch and revise the credit outlook from “positive” to “stable.” It’s important to note that these calendars are only reference points and do not guarantee that the agencies will conduct a review or make a new rating decision. Nevertheless, since periodic reviews are generally released during interim periods rather than on scheduled review dates, Moody’s decision on Friday was perceived as unexpected. In the periodic review, Moody’s indicated that they expect disinflation to continue in 2025 with the inflation rate declining to about 30% by the end of the year. The agency noted that the rating could be upgraded if the authorities continue to effectively implement policies that restore macroeconomic stability, reduce inflation on a sustained basis, achieve lasting de-dollarization of the economy, and rebalance growth away from credit-driven domestic demand. The agency also highlighted that given the positive outlook, a downgrade is unlikely, however; they would likely change the outlook to stable if the improvements in disinflation, de-dollarization and current account deficits stalled or reversed or were not accompanied by structural changes that would reduce the risks that future inflation shocks become long-lasting. Following Moody’s, Fitch’s credit rating review for Turkey, scheduled for Friday, January 31^st, will be the focal point of investors this week. For the Fitch review, we do not anticipate any changes in credit rating or outlook for Turkey. Please note that S&P and Fitch currently assess Turkey’s credit rating as three notches below investment grade, while Moody's evaluates it four notches lower. In their most recent reviews, S&P and Fitch assigned a "stable" outlook, whereas Moody’s maintained a "positive" outlook.

* The CBT will release January Real Sector Confidence Index and Capacity Utilization Rate @ 10:00 local time today. Today’s will provide the first growth signals for 2025. As a reminder, the Real Sector Confidence Index (RSCI) eased to 99.1 level from 100.4 as of December, sliding below the 100-threshold for the first time since September and indicating a pessimistic outlook to the economic activity by the real sector agents covered by the Survey. The seasonally adjusted RSCI, moreover, dropped to 102.7 from 103.4. In addition, the unadjusted Capacity Utilization Rate (CUR) decreased to 75.8% from 76.1%, while the adjusted CUR remained unchanged at 75.6% in December. The evident rise in consumption 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 Treasury sold TL87.7bn at the direct sale of 1y gold-denominated bond & 1y gold-denominated lease certificates last Friday, finalizing its domestic borrowing strategy for January. Accordingly, the Treasury’s total domestic borrowing since the beginning of the month totaled TL315bn, above the initial projection of TL293.8bn. The Treasury will release its next three-month (Feb – April 25’) domestic borrowing strategy on January 31^st. According to the previous program (Jan – March 25’), the Treasury has a domestic redemption of TL97.7bn in February, while in return plans to borrow TL166.4bn throughout the month.