Macro and Politics

* The Treasury will hold a 7y FRN bond auction today. After today’s single auction, the Treasury will hold 3y CPI-indexed and 5y fixed coupon bond auctions tomorrow, finalizing its domestic borrowing program for March. According to the three-month (Mar – May 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL124.7bn in March, while in return plans to borrow TL201.2bn throughout the month, via five auctions. The Treasury’s tapped the domestic markets to the tune of TL102.4bn so far this month.

* The Treasury and Finance Ministry will release February central government budget figures @ 11:00 local time. 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. In the absence of a forthcoming improvement in the cash budget, we believe that upside risks to growth could intensify. As 2025 is set to be the year of a decisive battle against inflation, the effective implementation of fiscal policy in greater coordination and the achievement of fiscal consolidation will be critical in striking a balance between inflation and growth. In this context, we maintain our 2025 budget deficit forecast at TRY 1.61 trillion (2.7% of GDP). However, we believe that risks to our forecast are increasingly skewed to the upside.