Macro and Politics

* The Treasury will hold 8m zero-coupon bond auction today. According to the three-month (October–December 2025) domestic borrowing strategy, the Treasury plans to borrow a total of TL290.1bn through five auctions and one direct sale, against redemptions of TL263.6bn in October. Following today’s single auction, the Treasury will hold a direct sale of a 2-year lease certificate indexed to the TLREFK (Turkish Lira Overnight Participation Reference Rate) and a 5-year fixed-coupon bond auction tomorrow. In the following week, the Treasury will offer a 5-year CPI-indexed bond on October 13, and 2-year and 10-year fixed-coupon bonds October 14, thereby concluding its October domestic borrowing program.

*The CBT will release September Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation realizations and the average Basket/TRY change for September, we expect the REER to increase from 69.84 to 70.93, implying a 1.6% real appreciation of the Turkish lira.

* TURSTAT will release September seasonally adjusted CPI and special CPI aggregates today @16:00 local time. Based on our calculations, we forecast the seasonally adjusted (SA) monthly CPI change for September to be approximately 3%. Moreover, we calculate SA Core-B as 2.6% and SA Core-C as 2.5%. We expect a similar outcome in today’s adjusted figures.

* The CBT will release the Monthly Price Developments report for September 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 increased by 3.2% m/m in September, coming in well above both our house forecast and the market median estimate of 2.5%. Accordingly, headline inflation paused its downtrend, with annual CPI edging up from 33% to 33.3%, marking the first uptick in 16 months. The divergence between our forecast and the realization has largely stemmed from stronger-than-expected food inflation, as food prices surged by 4.6% m/m, significantly above our 2.7% projection. Following the September data, we expect the CBT to revise its 2025 inflation forecast range of 25% –29% upward in the Inflation Report presentation on November 7. That said, we maintain our 2025 year-end CPI forecast at 29.7%, as we continue to anticipate a notable deceleration in monthly inflation over the final two months of the year. However, we note that upside risks to our forecast have increased. Overall, we believe the September inflation data could prompt the CBT to adopt a more cautious approach in its rate-cut cycle. While we still expect further rate reductions, we think the Bank may consider slowing the pace of easing over the next two meetings in 2025, delivering 150bps cuts at each.