Macro and Politics
Tacirler Investment
* The CBT will release the May Sectoral Inflation Expectations survey @ 10:00 local time. According to the results of the April survey, 12-month-ahead annual inflation expectations have increased by 1pp to 25.6% for market participants and by 0.6pp to 41.7% for the real sector, while remaining unchanged at 59.3% for households. For May, we observed that the 12-month ahead inflation expectations declined merely to 25.06% from 25.56% in the May Market Participants' Expectations Survey. Hence, today's survey will focus on tracking the evolution of inflation expectations across the real sector and households.
* The CBT will release the weekly portfolio flows and money & banking statistics for the period of May 9 – 16@ 14:30. Due to this week’s public holiday, weekly portfolio flows and money & banking statistics data, typically released alongside the reserves data in every Thursday, will be published today.
* The inflation forecasts remained unchanged during the 2nd Quarterly Inflation Report of the year, delivered today by the CBT Governor Karahan. Accordingly, inflation is projected to be between 19% and 29% (with a midpoint of 24%) at end of 2025. Karahan noted that although the forecast range should have been mechanically narrowed as the year-end approaches, the Bank opted to keep it unchanged mainly oon the back of heightened uncertainties in recent months. While we do not expect a rate cut from the CBT in June, the messages conveyed today appear broadly in line with our expectations. Ahead of any potential rate cuts, we believe it is critical that (i) the reserve accum. process continues in a sustainable manner, and (ii) the trend in FX deposit does not turn against the lira. In this context, we do not foresee a rate cut in June, while approaching the July meeting with caution. Our base scenario anticipates the start of a rate-cutting cycle in September, culminating in a year-end policy rate of 38.5%–40%.
* In the week of May 9 – 16, the CBT’s reserves exhibited an increase consistent with our calculations based on the analytical balance sheet. Accordingly, the CBT’s net international reserves increased by USD2.4bn to USD40bn, while gross FX reserves rose by USD1.3bn to USD145.8bn. Moreover, net reserves excluding swaps climbed by USD5.3bn to USD23.4bn.
*The unadjusted Real Sector Confidence Index (RSCI) slid further to 101.4 level in May from the previous month’s 103.2, while the seasonally adjusted RSCI declined to 98.6 from 100.8, easing below the 100-threshold for the first time since September. Meanwhile, the capacity utilization rate (CUR) edged up to 75% from 74.3% and the seasonally adjusted CUR increased to 75.1% from 74.6% level in May. "It is worth reiterating that we have started to observe the adverse impact of heightened political tensions and market volatility—particularly since March 19—on leading indicators as of April. Moreover, the deteriorating confidence environment in the real sector persisted and deepened further in May. While our GDP growth forecast for 2025 remains at 3.1%, we assess that downside risks to this projection are mounting. Additionally, we observe from the CBT’s forecast charts that the output gap is projected to remain in negative territory through 2028, with a deeper negative reading expected in 2025. Hence, amid tighter financial conditions and recent domestic developments, we assess that the likelihood of sub-3% growth in 2025 has increased considerably.