Macro and Politics
Tacirler Investment
* TURKSTAT will release the June inflation figures today @ 10:00 local time. We expect CPI to rise by 1.38% m/m in June, lower than the median estimate at 1.5%. Should the monthly figure materialize in line with our forecast, annual inflation edge down from 35.4% to 35.1%. A monthly reading below 1.5%, aligned with our forecast, would likely fuel market expectations for a policy rate cut by the CBT. However, even in the case of such a surprise downside, we expect the Bank to proceed with caution. While the June MPC statement softened the hawkish tone by neutralizing the forward guidance, the decision to keep the upper band of the interest rate corridor unchanged signals that the CBT remains cautious in its approach. Against this backdrop, we take a prudent view on the recent rise in market expectations for an aggressive rate cut. Following an effective 300bps easing in June, we believe the policy framework has not yet fully reverted to pre-March 19 conditions, limiting the scope for a sharp cut in July. It is also worth noting that net reserves excluding swaps still remain at only half the level observed prior to March 19. In addition, we believe the Committee continues to monitor dollarization risks, and by maintaining the upper band, aims to preserve policy flexibility in the face of ongoing uncertainties. Given that the MPC refrained from lowering the upper band in June, we think a sizable cut in July is unlikely. Accordingly, our baseline scenario envisions 250bps rate cuts at each meeting starting in July, bringing the policy rate down to 36% by year-end.
* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of June 20 – 27 @ 14:30 local time. Based on our calculations upon the CBT’s analytical balance sheet, we estimate that during the week of June 20 – 27, gross FX reserves dropped by USD1.16bn to USD154.7bn, while net international reserves sliding below USD47bn. We expect today’s official figures to confirm a decline in line with our projections.