Macro and Politics

* The Treasury will hold 3y CPI-indexed & 5y fixed coupon bond auctions today and finalize its domestic borrowing program for February. The Treasury tapped the domestic markets to the tune of TL40.4bn (including non-competitive sales) through yesterday’s 4y TLREF indexed bond auction. The bid – to – cover ratio was high at 3.68x, indicating robust demand, while the term rate settled at 12.51%. As a result, the Treasury’s domestic borrowing so far this month has reached TL172.2bn. According to three-month (Fed – Apr 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL117.8bn in February, while in return plans to borrow TL180.1bn throughout the month. Having already raised TL172.2bn through domestic borrowing this month, the Treasury is likely to slightly surpass its February domestic borrowing target of TL180.1bn with today's two auctions.

*The CBT will release the Residential Property Price Index (RPPI) for January @ 10:00 local time. The 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.

*The central government budget recorded a deficit of TL139.3bn in January, while the primary balance posted a surplus of TL23.8bn. Accordingly, the 12-month cumulative budget deficit remained at TL2.1tn, while the primary deficit narrowed to TL782.3bn. Recall that the Treasury's cash balance posted a deficit of TL204.9bn in January, while the primary balance recorded a deficit of TL54.1bn during the same period, reflecting a persistent divergence between accrual-based and cash budget outcomes. While cash-based performance is likely to remain weak, we foresee non-tax revenues and interest expenditures emerging as the key drivers of fiscal performance in the months ahead. 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.