Macro and Politics

* In the week of June 6 – 13, foreigners registered a net purchase of USD475mn in equities and USD580mn in government bonds (excluding repo transactions). This marked the ninth consecutive week of foreign inflows into the equity market, while the bond market saw a return to net foreign buying following two weeks of outflows. As a result, the foreigners’ share in total bond stock edged up from 4.8% to 5.1% within the mentioned week. During the week of June 6–13, residents’ FX deposits rose by USD 2.6bn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) increased by USD2.9bn during the week of June 6 – 13. Besides, The CBT’s gross FX reserves rose by USD3.4bn to USD159.5bn and net international reserves climbed by USD2.6bn to USD54.8bn, while net reserves excluding swaps surged by USD2.9bn to USD35.4bn.

* The Monetary Policy Committee (MPC) kept the policy rate unchanged at 46% and made no adjustments to the interest rate corridor, maintaining the upper bound at 49%. Both our house forecast and the market consensus had anticipated a reduction in the upper band to 47.5%. The decision is hawkish than expected, as the ceiling for market rates remains intact at 49%. Amid the ongoing recovery in reserves for the past five weeks, declining inflation and the uninterrupted decline in residents’ FX deposits for seven consecutive weeks, we believe the CBT may initiate rate cuts as early as July. That said, geopolitical risks and the trajectory of energy prices will be key factors to monitor. Considering the existing market and economic dynamics, we believe the commencement of a rate-cutting cycle in July could pave the way for the policy rate to be reduced to the 36% – 38% range by year-end.

* The CBT will release the Residential Property Price Index for May @ 10:00 local time. The Residential Property Price Index (RPPI) rose by 1.4% m/m and 32.9% y/y in April, reaching a level of 176.4. Yet, in real terms, the index posted an annual decline of 3.6%. Although the annual real depreciation in housing prices has persisted since February 2024, the pace of this depreciation has been moderating since October. Notably, the 3.6% year-on-year decline recorded in April marks the smallest real loss in value observed since February 2024. The y/y increase in mortgaged home sales appears to have been driven by expectations of further price appreciation, despite mortgage rates remaining elevated at around 40%. These expectations are likely supported by the recent stabilization in real house price depreciation, following an extended period of real term weakening. This trend in both mortgage-backed sales and house prices continued in April as well.

*TURKSTAT will release June Consumer Confidence Index @ 10:00 local time. The consumer confidence index ameliorated by 1.1% to 84.8 level in May. Please recall that the index slumped by 2.3% to 83.9 level in April, mainly on the back rising idiosyncratic concerns. As of May, a renewed upward trend is evident, accompanied by a notable improvement in consumer sentiment. It is important to underscore that the consumer confidence index — which ranges from 0 to 200 — signals pessimism when it falls below 100, and optimism when it exceeds that threshold.