Macro and Politics

* The CBT will release the March Sectoral Inflation Expectations survey @ 10:00 local time. Following the rising volatility in TL assets that began on Wednesday, March 19^th, due to idiosyncratic factors, it will be crucial to assess how inflation expectations among economic agents have shifted in the March survey. After the heightened domestic political tensions, it is likely that the increase in household inflation expectations observed in February will persist into March, and there may be a deterioration in the expectations of the real sector. As a reminder, according to the results of the latest February Sectoral Inflation Expectations survey, 12-month-ahead annual inflation expectations decreased by 0.1 points to 25.3% for market participants and by 1.9 points to 41.9% for the real sector, while increased by 0.4 points to 59.2% for households.

*Treasury and Finance Minister Şimşek and CBT Governor Karahan held a conference call with foreign investors. According to reports, the one-hour meeting attracted significant interest from approximately 4,500 investors across North America, the United Kingdom, other European nations, and the Middle East. During the meeting, Şimşek highlighted that market volatility has been gradually subsiding and reassured participants that there are no concerns regarding debt stock or rollover ratios. Addressing the depreciation in TL assets, he acknowledged the presence of temporary factors affecting monthly inflation but emphasized that these do not pose a risk to meeting the annual inflation target. Şimşek also stated that there is no planned revision to the Medium-Term Economic Program (MTEP). Furthermore, Şimşek noted that demand for the U.S. dollar in domestic markets has moderated and cautioned against interpreting every stable exchange rate movement as an intervention. He underscored that domestic demand for foreign currency remains subdued, with heightened demand during periods of volatility primarily stemming from foreign investors and funds. CBT Governor Karahan, meanwhile, reiterated that the central bank remains committed to a meeting-by-meeting approach in its decision-making process, stressing that an interim meeting was deemed necessary. He also emphasized that the CBT possesses a broad set of policy tools and stands ready to take additional measures when warranted.

*Vice President Cevdet Yılmaz participated in a live broadcast yesterday, where he addressed key economic concerns. Acknowledging a certain decline in reserves amid the recent surge in market volatility, Yılmaz stated that the CBT and the Capital Markets Board (CMB) have implemented necessary proactive measures, emphasizing that these adjustments are of a temporary nature. Regarding withholding tax, Yılmaz underscored its significance in public revenue generation and confirmed that no changes to the current framework are on the agenda. He also noted that a moderate increase in the exchange rate could lead to a certain degree of pass-through to inflation expectations but stressed that he does not anticipate any major shifts.

*The Real Sector Confidence Index (RSCI) further improved to 104.1, which stands for the highest level since May, up from 102.4 in March, while the seasonally adjusted RSCI increased from 102.8 to 103.2. Additionally, the Capacity Utilization Rate (CUR) showed a modest change, with the unadjusted CUR edging down from 74.5% to 74.4%, while the adjusted CUR increased to 75.2% from 74.9% in March. We observe that upside risks to our 2025 growth forecast of 2.6% are rising. Our baseline scenario for this year assumed that, following a decline in annual growth in the first quarter of 2025, a recovery in economic activity would take center stage from the second quarter onward, leading to a full-year growth rate of 2.6%. However, incoming leading indicators suggest that the anticipated slowdown in the first quarter may not materialize to the extent we had initially projected. Hence, the trajectory of growth dynamics continues to pose a risk to the disinflation process.