Macro and Politics

* The CBT extended the loan growth measurement period from four weeks to eight, with credit growth limits remaining unchanged. By doubling the assessment horizon, banks will operate under a more flexible framework, as they are granted additional time to align credit expansion with regulatory thresholds. We also view the extension as a step that will allow credit growth to be monitored in a more stable and sustainable manner. That said, we underline that this adjustment does not constitute a relaxation of credit conditions, given that the underlying limits remain intact. We will continue to closely monitor any additional measures the CBT may introduce in this area.

*The Treasury will hold a 7y FRN auction today. After today’s single auction, the Treasury will hold 4y TLREF & 5Y fixed coupon bond auctions tomorrow and the direct sales of 1y USD-denominated bond & 1y USD-denominated lease certificate on August 21, finalizing its domestic borrowing program for August. According to its three-month (August – October 2025) domestic borrowing program, the Treasury faces a hefty domestic redemption of TL339bn in August, while in return it plans to borrow TL440.8bn in total throughout the month, indicating a roll-over ratio of 130%. The Treasury’s total domestic borrowing for this month has reached TL136.1bn. Hence, it is likely to borrow around TL305bn this week.

* The CBT will release June short-term external debt stock figures @ 10:00 local time. The short-term external debt stock in May materialized at USD170.3bn, up by 1.2% m/m. In terms of short-term debt statistics, we believe that “debt stock on a remaining maturity basis,” calculated based on the external debt maturing within 1 year or less regarding the original maturity, is rather critical, which is at USD222.3bn as of May 2025. Of this total, USD25.6bn is attributed to loans taken by resident banks and private sector affiliates from their branches and affiliates abroad. Stripping this amount from the total results in USD196.7bn. We also add 12-month forward-looking CAD expectations on this amount so as to reach Turkey’s annual external financing need (EFN).  Accordingly, we calculate EFN as of February 2025 around USD220bn.

* According to the results of the CBT’s August Market Participants’ Survey, the year-end 2025 inflation expectation edged slightly higher to 29.69%, after easing from 29.86% to 29.66% in July, ending a two-month decline. 12-month ahead CPI expectations fell from 23.39% to 22.84%, while the 24-month expectations eased from 17.08% to 16.92%. Participants’ median expectation for August CPI stands at 1.7%. Although we have not finalized our house forecast, our price compilations so far point to a monthly CPI increase of around 1.9% for August. Such an outcome would bring annual CPI down from 33.5% to 32.8%. We maintain our year-end inflation forecast at 31%, while assessing risks as tilted to the downside. Moreover, survey participants expect the MPC to cut the policy rate by 300bps at its September 11 meeting, bringing it to 40%. They anticipate a slower pace thereafter, with 226bps of rate cut in October and a further 218bps in December, ending the year at 35.57%. We expect the MPC to proceed with a 300bps cut in September, followed by 200bps reductions in both October and December, taking the policy rate to 36% at year-end.

* The central government budget posted a TL23.9bn deficit in July, while the primary balance recorded a surplus of TL110.7bn. In the same period last year, the budget had registered a TL96.8bn deficit alongside a TL4.2bn primary deficit. With the July figures, the 12-month cumulative budget deficit remained broadly unchanged at TL2.3tn, whereas the 12-month primary deficit narrowed from TL532bn to TL417bn. For the January – July period, the budget deficit reached around TL1tn, corresponding to 52% of the government’s full-year projection, while the primary balance posted a surplus of TL241.7bn. The persistent divergence between the cash-based and accrual-based budget indicators continues to point to a loose fiscal stance. We expect this divergence to remain in place over the rest of the year. We maintain our year-end budget deficit forecast at TL1.9tn (around 3% of GDP), while assessing risks as skewed to the upside.