Macro and Politics

*The CBT will release June Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation data and the average Basket/TRY change for June, we expect the REER to ease from 71.1 to 70.1, implying a 1.5% real depreciation of the Turkish lira.

* TURSTAT will release June seasonally adjusted CPI and special CPI aggregates today @16:00 local time. Based on our calculations, we forecast the seasonally adjusted monthly CPI change for June to be approximately 1.9%. We expect a similar outcome in today’s adjusted figures.

* The CBT will release the Monthly Price Developments report for June today @18:00 local time. The report is a technical one and does not contain a policy message. Still, the assessment of trend core inflation will be monitored closely.

*The CPI rose by 1.37% on a monthly basis in June, in line with our house est. at 1.38% and lower than the market consensus of 1.5%. Hence, annual CPI declined from 35.4% to 35.05% in June. Moreover, monthly PPI rose by 2.46%, pushing the annual PPI inflation up from 23.13% to 24.45%. We maintain our year-end inflation forecast at 31%. We estimate that the 24.6% increase in the state-run natural gas distributor Botas’ residential natural gas tariffs will add approximately 0.45pp to headline inflation in July. However, with the prevailing positive base effect, we expect the annual CPI to sustain its decline in July, potentially falling below 34%. In line with our year-end exchange rate and energy price assumptions, we retain our year-end inflation forecast at 31%, while acknowledging that the balance of risks remains tilted to the downside at this stage.

* In the week of June 20 – 27, foreigners registered a net purchase of USD247.7mn in equities and USD305mn in government bonds (excluding repo transactions). Moreover, the foreigners’ share in total bond stock climbed from 5.5% to 5.7% within the mentioned week. Moreover, during the week of June 20 – 27, residents’ FX deposits rose marginally by USD475mn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) increased by USD677mn during the week of June 20 – 27. Lastly, the CBT’s gross FX reserves slid by USD1.3bn to USD154.6bn and net international reserves retreated by USD1.8bn to, while net reserves excluding swaps decreased by USD1.8bn to USD28.3bn.