Macro and Politics

* In order to strengthen the monetary transmission mechanism and support transition to the Turkish lira (TRY), the CBT has made the following changes in the macroprudential framework: (i) The growth targets for real-person TRY deposit shares have been increased for banks with a share below 60%, while a monthly growth target of 0.4 points has been introduced for banks with a share between 60% and 65%, (ii) The reserve requirement ratio for FX-protected deposit (KKM) accounts has been raised from 33% to 40%, (iii) The minimum interest rate applicable to KKM accounts has been reduced from 50% to 40% of the policy rate, (iv) The target for transition of KKM accounts to TRY has been abolished, while the total target for KKM renewals and transition to TRY has been maintained, (v) Floating-rate TRY deposit accounts can now be opened with maturities longer than one month. Furthermore, the reserve requirement ratios for CPI-, PPI-, and TLREF-indexed deposits have been set at 10% for all maturities, (vi) The ratio for TRY-denominated required reserves that should be maintained for FX deposits has been reduced from 4% to 2.5%.We interpret these changes as steps that accelerate the phase-out of the FX-protected deposit scheme (KKM) and support the Turkish lira. With the increase in funding through weekly repo auctions, market rates and the weighted average cost of funding (WACF) declined from 49% to 46% over the past two weeks. In response, the authorities raised the TL deposit target to prevent a further decline in deposit rates and to maintain the lira’s strength. Meanwhile, the reduction in the additional reserve requirement for FX deposits marks a partial reversal of the previous tightening measures on foreign currency holdings — a move that can be seen as part of a broader normalization effort. Lastly, the recent KKM-related decisions signal the final phase of the exit from the scheme.

* The consumer confidence index rose a tad by %0.4 to 85.1 level in June. 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. This brought the index average up from 83 in 1Q25 to 84.6 in 2Q25, indicating a modest improvement in sentiment. A breakdown of the June consumer confidence index reveals the following: The sub-index reflecting financial situation of household at present recorded a modest increase, rising from 69.1 in May to 69.3 in June — though this was notably weaker than the gain observed in the previous month. Meanwhile, the sub-index measuring financial situation expectation of household over the next 12 months rose by 0.6% to 85.8. Following a 0.7% month-on-month decline in May, general economic situation expectation over the next 12 months rebounded slightly in June, increasing by 0.3% to 82.4. Lastly, the sub-index tracking assessment on spending money on durable goods over the next 12 months — a key indicator of domestic demand — edged up by just 0.1% to 102.6 in June, following a strong 3.3% increase in May.

* The Residential Property Price Index (RPPI) rose by 3.4% m/m and 32.3% y/y in May, reaching a level of 182.4. Yet, in real terms, the index posted an annual decline of 2.3%. Although the annual real depreciation in housing prices has persisted uninterruptedly since February 2024, the pace of this depreciation has been moderating since October. Notably, the 2.3% year-on-year decline recorded in May marks the smallest real loss in value observed since February 2024. We believe that the recent annual increase in mortgaged home sales was partly driven by expectations of future price hikes, as real house prices—having been in decline for some time—have recently shown signs of stabilization. Looking ahead, we expect the annual change in real house prices to turn positive in the near term.