Macro and Politics

* The CBT will release the results of the January Market Participants’ Expectations Survey today @ 10:00 local time. In light of the CBT’s upward revision of its 2025 year-end inflation forecasts during last week’s Q1 Inflation Report presentation, we anticipate that today’s survey results will reflect an upward adjustment in market participants' year-end expectations as well. In the latest survey published in January, market participants' year-end inflation expectation materialized at 27%. Given the adaptive nature of the expectations, it would not be surprising to see this figure edge higher towards 29% in the February survey results set to be released today. While we maintain our 2025 year-end CPI forecast at 28%, we acknowledge the upside risks and are considering a possible upward revision in the near term. Moreover, today’s survey results will be closely scrutinized for market participants’ expectations regarding the policy rate trajectory. In light of the anticipated upward revisions in inflation expectations, we believe market expectations could evolve to anticipate the Central Bank slowing rate cuts sooner than previously expected. Although our year-end policy rate forecast is set at 30%, we recognize that there are upside risks to this outlook.

* TURKSTAT will release January house sales figures @ 10:00 local time. House sales recorded a strong increase in December, reaching a total of 212,637 units, up by 53.4% year-on-year and 39% compared to the previous month. In 2024 as a whole, housing sales rose by 20.6% compared to 2023, totaling 1,478,025 units. Over the year, mortgage-backed home sales declined by 10.8% y/y, reaching 158,486 units. Meanwhile, home sales to foreigners dropped by 32.1% compared to the previous year, amounting to 23,781 units in 2024. In December, mortgage-backed home sales increased by 6.8% m/m to 23,277 units, marking a significant 285.3% y/y surge. When analyzing mortgage loan interest rates in the housing market, we observe that the average mortgage interest rate, which stood at 42.1% in December 2023, remained relatively unchanged at 41.1% in December 2024. Despite persistently high mortgage rates, the sharp annual increase in mortgage-backed home sales appears to be driven by expectations that housing prices, which have been declining in real terms for some time, will rise in the coming period.

*There was net foreign selling activity through standard portfolio channels during the week of January 31 – February 7. Accordingly, the equity and the bond market (excluding the repo transactions) experienced a foreign outflow of USD49.6mn and USD1.5bn, respectively. Moreover, the foreigners’ share in the total bond stock retreated to 8.4% from 8.6%. On an annual basis, the equity market recorded a cumulative foreign outflow of USD2.8bn, whereas the bond market (excluding repo transactions) saw a cumulative foreign inflow of USD16bn. Besides, the residents’ FX deposits climbed approximately by USD3bn (gold accounts excluded, EUR/USD parity adjusted) in the period of January 31 – February 7, while the residents’ total FX deposits (including gold, price adjusted) surged by USD3.2bn. Moreover, the CBT’s gross FX reserves climbed by USD1.5bn to USD167.6bn, while net international reserves rose by USD0.6bn to USD72.3bn. Net reserves excluding swaps eased by USD0.2bn to USD65bn, while net swap stock edged up by USD0.8bn to USD7.2bn.

* The CBT announced the December balance of payments statistics, revealing a USD4.65bn current account deficit, higher than our house estimate at USD3.5bn of deficit and median estimate of USD4bn of deficit. Accordingly, the current account balance for 2024 posted a deficit of USD9.97bn, slightly above our house expectation of a USD9bn deficit (0.7% of GDP). Preliminary data released by the Ministry of Trade indicates a slight decrease in the foreign trade deficit in January. According to the preliminary figures for January, exports increased by 5.8% year-on-year, reaching USD21.bn, while imports rose by 10.2%, reaching USD28.8bn. Based on these preliminary data, the foreign trade deficit decreased from USD8.8bn to USD7.7bn in January, while the annual deficit climbed from USD82.1bn to USD83.5bn. For 2025, our year-end current account deficit forecast stands at USD15bn (1% of GDP), with upside risks attached.